RBC Capital starts Restaurant Group at 'outperform' on Wagamama deal

31st Jan 2019 12:32

(Sharecast News) - RBC Capital Markets initiated coverage of Restaurant Group at 'outperform' with a 200p price target on Thursday, as it said the company has been "transformed" by the acquisition of Wagamama, which completed at the end of November.RBC said the Wagamama deal was a game changer and estimated that by 2021, it will account for 45% of the merged group's EBITDA.The Canadian bank said the deal "materially improves" the growth profile, with over 80% of the combined group's EBITDA exposed to the growth segments of Wagamama, pubs & concessions."Previously, investors would have paid 14x price-to-earnings for a business where 50% of the EBITDA was exposed to the challenged leisure operations given 57% of these sites are retail based."However, post-acquisition, the stock trades at 9.6x 2020 estimated P/E with significantly enhanced growth prospects and a 4% yield."RBC reckoned that the synergies and expertise in delivery will generate around £22m incremental EBITDA by 2021. It pointed to Wagamama's above-peer growth and the fact that it has sustained average like-for-like growth at 9.6% since FY15, outperforming the industry.At 1345 GMT, the shares were up 0.3% at 152.10p.