Scrutineer: Cheap but not so cheerful

Published on Monday 5 January 2009 20:20

Restaurant Gp 107p +1.5p

RESTAURANT operators specialising in value-for-money offerings are bound to have more defensive quality than their ritzier peers in this unconducive climate.

But that is far different from being immune to it. So it is with the imaginatively titled Restaurant Group.

The company that runs the Garfunkel's and Frankie & Benny's chains has reported like-for-like sales growth of 1.5 per cent for the 52 weeks to 28 December.

That rate has slowed from the 2.5 per cent growth covering the 45 weeks to 9 November.

As many people are clearing credit card and other debts as quickly as possible against the backcloth of the recession and rising fears of unemployment, it is surely no coincidence that sales growth at companies like Restaurant Group is slowing.

The siting of the group's outlets – retail parks, leisure complexes etc – is also a double-edged sword.

There are relatively high hurdles to entry into the sector of the market the company is in, and that gives Restaurant Group a relatively strong hand in resisting pressures to cut prices.

But on the other hand the company does not benefit much from passing high street trade.

Equally, although the group, which also owns Chiquito, has a better defensive proposition than more upmarket rivals, it is still vulnerable to any growing view that eating in is a cheaper option than going out to even a self-styled "value offering".

Restaurant Group's same-floorspace growth has fallen from 5 per cent in the spring of 2008.

Prudently, the group has limited its expansion plans to no more than 25 new outlets in 2009 – down from 40 in 2008. The 6 per cent dividend yield of the stock also looks a useful hedge in these days of volatile stock markets and low rates of interest on bank deposits.

However, many analysts have already priced in a further 5 per cent fall in like-for-like sales this year, and possibly a resulting 1 percentage point fall in profit margins.

The next big test for the business is to repeat the trick it managed yesterday of avoiding the dreaded profit warning. If it does succumb to one this year amid the tough trading conditions, the shares will undoubtedly lose some of their defensiveness.

In short, a decision on Restaurant Group's shares is a fine call. Hold.

FINE china and glassware to DVDs and boxes of Quality Street. Waterford Wedgwood to Woolworths.

Nobody can now question the breadth of this downturn. The Irish fine china and glassware group yesterday announced it had followed a gathering host of other well-known names into administrative receivership.

The administration trigger has come with Waterford Wedgwood's lenders saying they would not renew a "forbearance period" on the company's decision early in December that it would not make a coupon payment on part of its 370m-odd of debt. A coupon to bondholders is the equivalent of a dividend to shareholders.

The credit crunch has done the group no favours. But even before that struck there were market pressures.

Many rivals switched manufacturing to lower-cost countries, but Waterford took the decision to largely keep its factories in the UK and Ireland.

Administration is not good news, but such is the strength of the brands – Waterford glass and Wedgwood and Royal Doulton china – that the odds on a buyer being found must remain pretty good.

WE ARE likely to see a lot more petrified cranes against bleak skies in the coming months as construction projects are put on a hold.

Why should property developers bust a gut turning blueprint into office block when tenants will not be breaking down the door to offer good rents?

To the surprise of few, Britain's construction industry shrank last month at its quickest rate since records began more than a decade ago, according to the Chartered Institute of Purchasing and Supply/Markit construction index.

The index fell to 29.3 from 31.8 in November. That is dire, given that any level below 50 marks contraction, and it is the tenth month running that the index has been below this key level.

The construction industry is being squeezed by the shortage of bank credit for developers as well as falling property prices.

There is no cordon sanitaire around this recession.