Restaurant Group recovery is far from assured, Berenberg believes

It will be tough for Restaurant Group to deliver a sustained improvement in performance as cost and competition pressures continues to build, said Berenberg as it reiterated a 'sell' recommendation on the shares.

Recent results from the owner of Frankie & Benny's and Garfunkel's were upbeat as early-stage restructuring of the company led to a 2.2% decline in like-for-like sales in the first half of the year.

This was taken fairly well by the market but Berenberg noted that the company benefited from a number of external
tailwinds, the period only included a few weeks of the new lower priced menu at Frankie & Benny’s and other brand repositioning still to take place.

"Therefore, with the tailwinds unlikely to be as significant during the remainder of the year and prices at Chiquito set to be reduced over the next few months, we think the decline in LFL sales could accelerate," analysts wrote, seeing a negative effect from lower prices well into 2018 too.

EBIT margin declined 260 basis points in the first six months of the year as negative LFL growth and a variety of external headwinds hit profitability, though management expects to invest the £10m of cost savings and more into price, products and marketing.

Downside risks are seen as cost pressures are likely to continue squeezing margins more significant in the second half, with the situation little changed next year.

A highly competitive market is a further concern: "The CGA Peach Coffer business tracker shows that site additions continue to contribute circa 3 percentage points of the eating-out market’s growth. The increase in sites is driven both by brands that have been around for many years continuing to expand, but also by newer brands that have quickly gained a sizeable foothold in the market. As such, we think that, in more attractive locations, competition is only becoming more intense."