Restaurant Group Plc (LON: RTN)

Business Overview
Restaurant Group Plc is a UK based hospitality group with a diverse portfolio of well-known brands. The company presently operates 650 pubs and restaurants in the UK. The company also have a presence in Concessions business with 30 brands in the 70 outlets, mostly in the UK airports.

Recent News
On 28^th October 2019, the company announced that it had appointed two Non-Executive Directors, Alison Digges and Zoe Morgan.

Financial Highlights – H1 Financial year 2019 (30th June 2019, GBP, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s reported revenue increased by 58.20 per cent to GBP 515.9 million as compared with the corresponding period of the last year, due to acquisition of Wagamama and consolidated completely into TRG business. The company’s adjusted EBITDA stood at GBP 61.4 million, an increase of 60.1 per cent as compared to the first half of the fiscal year 2018. The company’s Adjusted operating profit stood at GBP 36.5 million, an increase of 70.8 per cent against the same period of the previous year. Adjusted profit before tax surged by 35.6 per cent to GBP 28.1 million as compared to GBP 20.7 million in H1 FY18. Adjusted profit after tax increased by 36.9 per cent to GBP 22.1 million as compared to GBP 16.2 million in H1 FY18. Adjusted basic earnings per share stood at 4.51 pence against the 5.89 pence in H1 FY18.

Share Price Performance

Daily Chart as on 13^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 13^th, 2020, Restaurant Group Plc shares were trading at GBX 145.70 at the time of writing before the market close (at 12:05 PM GMT), down by 2.94 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 167.70/GBX 110.10. The stock price has given negative 8.93 per cent returns during the previous year. However, in the last six months and three months, the stock price has recovered giving 2.03 per cent returns and 3.18 per cent returns respectively
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Conclusion
On an adjusted basis, the company has shown decent financial performance for the first half of the financial year 2019. The company’s top-line performance has improved significantly with a solid performance from all businesses for the period. On Statutory basis, the company’s profitability remained in the negative zone. The company’s operations are further impacted by the ongoing Brexit, as it might disturb the company’s supply chain. The group is focussed on optimizing its Leisure business through disciplined estate management and targeted operational initiatives. The company’s business is positioned purposefully and is diversified to get benefit from the growth opportunities available.

Based on the decent prospects, we have given a "Hold" recommendation at the current price of GBX 144.90 (as on 13th January 2020, before the market close at 11:50 AM GMT).

Chemring Group Plc (LON: CHG)

Business Overview
Chemring Group Plc is a supplier of innovative solutions in aerospace, defence and security market. It has its customers all over the world. It solves critical problems of its customers with countermeasures, sensors and energetic solutions. It works with the military, agencies and businesses. The company has its presence for over 100 years and in over 50 countries.

Recent News
On 16^th December 2019, the company announced that Nigel Young, a non-executive director, had intention to retire on 30 April 2020. Andrew Davies, Chairman of Chemring's Remuneration Committee, would be stepping down as Chairman of the Remuneration Committee following the Company's Annual General Meeting in March 2020 and would be succeeded by Laurie Bowen. Andrew Davies will remain a member of the Remuneration Committee.

Financial Highlights – Financial year 2019 (31st October 2019, GBP, Million)

(Source: Interim Report, Company Website)

In the financial year 2019, the company’s reported revenue from continuing operations grew by 13 per cent to GBP 335.2 million as compared to GBP 297.4 million in the fiscal year 2018 due to strong performance in the Sensors & Information segment. Order intake for continuing operations for 2019 was up 14.1 per cent to GBP 410.6 million (2018: £360.0m), due to the release of further delivery orders on the HMDS IDIQ contract. The underlying EBITDA increased by 22 per cent to GBP 61.2 million against GBP 50 million in FY2018. The underlying operating profit from continuing operations of GBP 44.0 million (2018: £31.0m) resulted in an underlying operating margin of 13.1% (2018: 10.4%). The increase in margin primarily reflects the positive impact of the phased restart of our Salisbury site. The underlying EPS was up by 62 per cent to 11.2p versus 6.9p in FY2018. Statutory operating profit was GBP 31.3 million in FY 2019 compared to loss of GBP 15.9 million in FY 2018. The company declared dividend of 3.6p per share in the FY2019. The net debt of the company reduced to GBP 75.7 million in FY2019 against GBP 81.8 million in FY2018.

Share Price Performance

Daily Chart as on 13^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 13^th, 2020, Chemring Group Plc were trading at GBX 258.70 at the time of writing before the market close (at 12:20 PM GMT), up by 0.077 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 260/GBX 134. The stock price has given 58.68 per cent returns during the previous year and now some correction in the stock price is expected.

Valuation Methodology

*Peers: Senior Plc, Trifast Plc, Qinetiq Group Plc, Ultra electronics Holdings Plc and Ab Dynamics Plc

Conclusion
The company has witnessed a decent financial performance during the financial year 2019. The company has implemented robust changes to improve safety, strengthen leadership and corporate governance, and embed continuous improvement across the company. The company has also changed the structure of the business and the way in which it operates to improve the quality of the business. The company is facing certain risks and uncertainties which could impact the overall business of the company. Changes in environment related laws and regulations could affect the overall business of the company. The group’s financial performance may be adversely impacted by lower defence spending by its major customers. The company operates in a technology driven market, any disruption in technology could affect the business of the company. Brexit uncertainty could hamper the operations of the company. There are certain financial risks such as fluctuation in foreign exchange rates, defaults on payment of debts, etc. which could impact the profitability of the company.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 260 (as on 13th January 2020, before the market close at 12.05 PM GMT), with support from few catalysts needs to be evaluated at a later stage. 
 
 
*All forecasted figures and peer information have been taken from Thomson Reuters.

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