Deutsche Bank downgrades Restaurant Group on dilutive strategy

The bank said the initially dilutive impact of the group’s repositioning strategy and the scale of the implied direct competitive threat – comparable to that laid out by Mitchells & Butlers last November - means it does not expect any like-for-like sales growth for around two years.

“It will take some time for the group to recover its growth rating,” DB said, noting that its 2018 sales and pre-tax profit estimates are now 17% and 23% lower than they were in August last year.

Deutsche said 2015 results were in line with downgraded expectations but the outlook for the company is tough.

“We have removed the premium previously applied to RTN to reflect the slower growth profile due to the reduced future opening programme and cannibalisation of existing sites.”

The bank is now applying the same multiple (12x EV/EBITA) that it uses for Mitchells & Butlers, as the competitive threat, new bottom line focus and slower LFLs issues are comparable.

It also pointed out both groups have relatively new CEOs still finding their feet.

At 1500 GMT, Restaurant Group shares were down 3.3% to 394.00p.