Restaurant Group Plc - Operating with Robust Liquidity, Decent Wagamama’s Performance in Q1

FTSE All-Share listed Restaurant Group Plc (LON: RTN) is a United Kingdom-based restaurant and pubs operator, which operates in the United States through its Wagamama division.

Q1 FY20 Wagamama Update
On 18^th June 2020, the RTN’s Wagamama Japanese cuisine unit provided the first quarter results of 2020, with the successful re-opening of delivery business, but was hit by Coronavirus during the home stretch. In Q1 FY20, the turnover decreased by 3.8 per cent to GBP 82.3 million from GBP 85.6 million in Q4 FY19. In the UK, the revenue reduced by 1.2 per cent to GBP 80.3 million in the first quarter of 2020, with Coronavirus significantly impacting trading in the last five weeks of Q1. In the first eight weeks of this quarter, the UK sales were 18 per cent higher and like for like sales increased by 8.4 per cent. The Group had 151 restaurants in operations in the UK as compared with the corresponding period of the previous year (28 April 2019: 140). Over the whole quarter, Wagamama’s like-for-like sales increased by 0.9 per cent against the same period last year. Adjusted EBITDA declined by 7.5 per cent to GBP 11.5 million in Q1 FY20 from GBP 12.4 million in Q4 FY19 (13 weeks), with strong growth of 40.7 per cent in the first eight weeks of Q1 being offset by the impact of Coronavirus in the latter weeks.

Share Price Performance

1-Year Chart as at June-18-2020, after the market closed (Source: Refinitiv, Thomson Reuters)

On 18^th June 2020, Restaurant Group Plc’s shares closed at GBX 66.05 and remained same versus the previous day closing price. Stock 52 weeks High and Low are GBX 167.70/GBX 20.26.
From the technical standpoint, its shares were trading well above its short-term support level of 50-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, Price/Sales multiple of the RTN was 0.3x, which was lower as compared with the Travel & Leisure industry. Hence, it is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Prospects and Risks Assessments
In Sales and EBITDA, Wagamama’s delivered growth in the first 8 weeks of Q1 FY20. The Company has a substantial amount of liquidity, which gives them enough potential to expand the business as the market revives. Furthermore, the plans for rationalisation of estates shall yield efficiency in the leisure business. Included some challenging weeks as the UK experienced major storms.

Conclusion
The Group witnessed a strong UK like-for-like sales before the COVID-19.It has taken a proactive plan to manage and mitigate risk through Covid-19. US joint venture arrangement became effective as of 31 January 2020. During the financial year 2019, the Company has delivered impressive growth in revenue and net profits. Fundamentally, the business looks attractive and robust with substantial asset base and cash flow, and therefore, the Group prospects look bright in the long run. Moreover, the successful re-opening of delivery business with the safety of the teams and customers at the forefront.

Over the past four years (FY15 - FY19), the company’s revenue surged from GBP 685.38 million in FY15 to GBP 1,073.05 million in FY19. Compounded annual growth rate (CAGR) stood at 11.86 per cent.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 66.05 (as on 18th June 2020) and will recommend fresh buying at the right time.
 

Motorpoint Group PLC (LON: MOTR)– Leading Vehicle Retailer with a Sustainable Business Model

Motorpoint Group PLC is a FTSE All-Share listed Vehicle Retailing Company. It operates 13 retail sites throughout the United Kingdom.

The Company is expected to release its preliminary results for FY20 (ending 31^st March 2020) on 14^th July 2020.

Recent News
21^st May 2020: The Company announced the recommencement of its operations through Home Delivery and Click & Collect services.

20^th May 2020: The Company announced that Keith Mansfield joined as Chair of Audit Committee from 20^th May 2020. He is also an Independent Non-Executive Director.

COVID-19 Update (as on 24^th March 2020)
In this update, the Group announced the closures of all its 13 sites, pursuant to the guidance from the Government regarding COVID-19. To mitigate the financial impact, the Company had adopted several cash management and cost reduction steps, such as suspending buyback programme, halting purchase of vehicle inventory, and differing all capital expenditure plans. Until 29^th February 2020 (for 11 months of FY20), the trading was in line with expectations; however, the COVID-19 disruption has been giving a material impact over the business operations.  

Share Price Performance

Daily Chart as on 18^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Motorpoint Group PLC’s shares closed trading at GBX 248 on 18^th June 2020 and remained the same against the last day closing price. Stock's 52 weeks High is GBX 324.00 and Low is GBX 170.00.

From the technical standpoint, its shares were trading flat as compared to its long-term support level of 210-day simple moving average price. Moreover, even the Relative Strength Index (RSI) indicator is currently signalling towards the overbought situation.

Valuation Methodology


Valuation Metrics
 
(Source: LSE)

As on 29^th May 2020, EV/EBITDA, and Price to Book multiples of the MOTR were 11.4x and 7.9x, respectively, and the same multiples were higher as compared with the General Retailers industry. It is reflecting that the Company is trading at higher multiples as compared to its peers.

Growth Catalysts and Risk Assessments
Trading conditions are quite volatile and uncertain for the Company. It already had the challenging first half of FY20 due to Brexit related uncertainties, and now COVID-19 restrictions induced closure of its sites. Hence, it would be reflecting in the FY20 results. Moreover, the Company looks overvalued from valuation multiple perspective, while technical indicators are not showing the right time to take a fresh position in the stock. Notwithstanding, the Board remains confident about the robust and resilient position of the Company in the long run.

Conclusion
As per the Company, 11 months trading to 29^th February 2020 was in line with expectations. However, the COVID-19 induced restrictions have materially impacted the business thereafter. Regarding liquidity, the Company has a decent balance sheet with GBP 20 million in revolving credit facility. The Group is confident regarding its position to resume operation as and when the Government allows. Meanwhile, the Company has relaunched contactless collection services to stay resilient. The Board of Motorpoint Group PLC appears to be confident for a resilient and robust business model to withstand the difficult time.

Based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 248.00 (as on 18th June 2020), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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