Restaurant Group slumps on Citi downgrade

The bank said that while there may be valuation support on a sum-of-the-parts basis, the company still faces significant trading headwinds, with limited near-term positive catalysts.

“Whilst we think recent management appointments of a new CFO and CEO are positive steps in the group’s rehabilitation, we suggest there could be further store closures and exceptional costs as new management looks to revitalise the leisure operations.”

“Restaurant Group’s share price has bounced over 50% of late. Given this significant move, and our view that the group faces ongoing operational headwinds, we downgrade the stock to sell.”

Last week, Restaurant Group said it swung to a pre-tax loss in the first half on the back of restructuring costs as it announced the closure of outlets.

In the 27 weeks ended 3 July, the group posted a loss before tax of £22.5m compared to a pre-tax profit of £38m the year before.

Meanwhile, like-for-like sales were down 3.9%, and Restaurant Group said it plans to exit 33 underperforming sites immediately as it reckons they are incapable of generating adequate returns.

At 0920 BST, Restaurant Group shares were down 4.5% to 378.10p.