Sunday share tips: The Restaurant Group, RBS, Connect Group

The Restaurant Group remains on the menu for the Sunday Times' Inside the City columnist Danny Fortson, three months after it was recommended in the paper while he was on holiday. After the Garfunkels owner's third profit warning in a year, the shares are a dog's dinner, but the main reason for the company's problems is down to the largest of its group of eatery brands: Italian chain Frankie & Benny’s, which accounts for 50% of the company’s empire but is looking a bit outdated.

This remains a sizeable company with strong brands, not much debt and with its shares trading at level not seen in years. The perfect meal, in other words, for a hungry private-equity buyer. Analysts at Cenkos Securities suggest a takeover value of 600p a share, based on recent deals for rivals. But as cashflow no longer covers management expansion plans and dividend obligations, one is likely to be cut as part of the strategic review that will report in August. Will a buyer catch this falling knife?

Shares in Royal Bank of Scotland are also worth avoiding, according to Questor in the Sunday Telegraph, which said investors were wrong to think banks will return to their profitable, income-paying status of decades gone by. Net interest margin, the gap between takings from loans and the payout on deposits, is so thin in these days of the current low Bank of England bank rate, with negative rates still a possibility.

UK banks also carry substantial credit risk from all the mortgages and other personal borrowing, with RBS having £883bn assets on the balance sheet and just £47bn in shareholders’ equity. The large quarterly loss reported on Friday may have been a one off but a return to the big time is long off. Dividends are not thought likely until 2018 due to recent difficulty in separating and disposing of its Williams & Glyn subsidiary.

Connect Group, the former Smiths News, was said by the Mail on Sunday's Midas to be worth buying. The UK's biggest newspaper and magazine distributor raised profits by more than a third in the half-year to end-February on sales 2.1% lower, showing that consumption of these media continues to underpin the business. For the full year it is expected to payout a dividend that will give the shares a yield of around 6%.

The company has diversified in recent years, with click-and-collect contracts to work with both online retailers Amazon and Asos an indication of how it uses its existing network of, and relationships with, newsagents and other high street shops. Connect set target of 50% of profit from outside the news and magazine distribution business, by the end of this year it should be in the mid-40% level, including via investment in online book website Wordery.com and parcel delivery specialist Tuffnells, both of which were acquired in 2014.

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