After yesterdays Tasty starter of European small caps. today we have a main course of a post close update from Restaurant Group. This showed increased sales (+9% and +3.5% Like for like (LFL), margins (>12.5% last year and against a 5 year average of 12%) and record profits which are expected to be ahead of the consensus of market forecasts. They had 35 new openings this year, also ahead of last year and these have seen strong trading and excellent returns, they plan to open between 36 & 43 new sites in 2014.
Restaurant Group operates 420 restaurants and pub restaurants. Its principal trading brands are Frankie & Benny’s, Chiquito and Garfunkel’s and more recently it has started a new chain of restaurants called Coast to Coast and has a Concessions division which trades principally on major UK airports. Many of its sites are also on or near leisure parks and cinemas to benefit from captive / casual diners enjoying a night out.
The Shares have done well since I bought them back in 2012 and certainly don't look such good value now they have re-rated to a P/E of about 20 x 2014 earnings, which is expensive, but is before any upgrades on the back of today's announcement. The yield has also come down to around 2.5% which is towards the bottom end of what I normally target on my holdings by way of yield. However, since this is a well managed, high return business (ROCE = 27.3%, 5 year Average = 24.9%) which is growing by reinvesting cash flow I am happy to run it as a winner for now, but I might take it off the menu if something more appetizing catches my eye.