11th Sep 2023 10:29
(Alliance News) - Restaurant Group PLC shares rose on Monday after the company confirmed it has agreed to sell its Frankie & Benny's and Chiquito chains to the owner of Bella Italia, Las Iguanas and Banana Tree.
The stock was up 5.6% at 50.14 pence in morning trade in London. It is up 9.0% over the past 12 months.
The buyer, Big Table Group Ltd, will pay a nominal GBP1 for Restaurant Group's loss-making Leisure business and will receive a "contribution" from Restaurant Group of GBP7.5 million.
For Russ Mould, investment director at AJ Bell, paying a third party to take the businesses off its hands showed just how "desperate" Restaurant Group was to get its finances in shape and "remove the shackles which have weighed it down for years".
"The two brands got left behind a decade or so ago when there was a big wave of new casual dining propositions, including posh burgers and burritos packed with fresh ingredients. Its sites became tired and the menus bloated with overpriced fried food.
"Something had to change and that meant downsizing the arm which housed Frankie & Benny's and Chiquito. It wasn't enough and now the group has gone for the nuclear option – jettisoning the brands from its portfolio, albeit at a cost of GBP7.5 million to The Restaurant Group," he said.
Restaurant Group on Monday said the disposal of its Leisure business, which consists primarily of 75 Frankie & Benny's and Chiquito restaurants, is expected to be completed at the start of the fourth quarter of this year.
It already had been in the process of closing loss-making sites in the division, and any sites already closed will remain the responsibility of Restaurant Group.
Big Table is backed by private equity firm Epiris LLP, which in the past has invested in Hotter Shoes and Hollywood Bowl Group PLC. Big Table operates 160 sites under the Bella Italia, Las Iguanas and Banana Tree brands.
Greg Johnson, research analyst at Shore Capital, said the proposed disposal was a "significant milestone" for Restaurant Group, which should remove the "drag" and "distraction" from the Leisure estate and allow it to focus on the "quality growth channels" of Asian noodle shops Wagamama and pub chain Brunning & Price.
Restaurant Group will consist of three divisions after the sale: Wagamama, Pubs and Concessions. It said the disposal will "significantly accelerate" its goals of improving margin and deleveraging.
The deal will result in a "minor" working capital outflow in 2023, Restaurant Group said on Monday. After that, adjusted earnings before interest, tax, depreciation and amortisation margin is expected to improve by one full percentage point in the first full year after the sale, while lease liabilities are expected to be reduced by about GBP50 million.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said shareholders are "clearly hopeful" that this "significant shift" in strategy with a leaner focus on Wagamama, concessions across travel hubs, and its pub restaurants business will reap more consistent rewards for Restaurant Group going forward, "without the drag of mid-market flab".
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
RTN.L