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Stock of the week: Restaurant Group

Written by:
Helal Miah, investment research analyst at The Share Centre, picks Chiquito and Frankie & Benny’s owner, Restaurant Group, as stock of the week.

We are taking a contrarian approach and have picked Restaurant Group which has had a difficult few years given competition, badly judged price hikes and the rise in minimum wages.

With over 500 restaurants and pubs to its name, Restaurant Group strives to double in size over the next eight to 10 years. The positioning of its restaurants, including Garfunkel’s and Coast to Coast, has been a key to its success, as they are often located in out of town, retail and entertainment complexes.

The company, which sells 43 million meals each year, also operates a concessions business which trades over 60 outlets across more than 30 brands, primarily in the UK. Interested investors should appreciate that shareholders benefit from a 25% discount at the restaurants.

Following the appointment of the experienced CEO, Andy McCue in 2016 and the completion of the firm’s strategic review on the business, investors will be hoping that the company’s fortunes will improve. Within this review, management has focused on the competitiveness of its brands, an improved customer experience, growing the concessions business and creating a leaner and more focused organisation. Investors should note that, encouragingly, management hopes the changes being made will start to show through by the year’s end.

The speed of the bad news over the first half of 2016 caught us and many in the market out. After the latest update, we would suggest the shares as a higher risk ‘buy’ for contrarian investors only, who either see its strong brands as a tempting proposition to a predator or to enable management to address the recent problems.

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