Restaurant Group's shares 'considerably undervalued', says Berenberg

Shares in Restaurant Group are "considerably undervalued" amid promising signs for its Wagamama franchise, the company's leisure brands and general market conditions, according to a note from Berenberg analysts.

In a research note sent to clients, the analysts argued that the company's turn around plan for its leisure brands is being rewarded as consumer perception of the FTSE 250 traded company's Frankie & Benny's restaurants was judged to have improved during the last year according following an analysis of its Trip Advisor ratings.

The chain ranked second behind Wagamama among top UK casual dining brands, giving rise to optimism that the brand might achieve sustained positive like-for-like growth.

"By far the most frequently mentioned aspect was “service” and three-quarters of those references were positive. “Food” and “breakfast” were also referred to positively on a regular basis, while “value” and “vegan” were noted on a few occasions. This further demonstrates that the changes which have been implemented by the company are the driving force behind the progress Frankie & Benny’s is seeing in consumer perception," they said.

For Wagamama, a similar analysis showed that the chain's most recent reviews were marginally better than its overall ratings, implying that the quality of the brand’s proposition had remained strong since its acquisition by The Restaurant Group.

"In addition, Wagamama has maintained the highest score across all of Trip Advisor’s rating criteria among the 10 brands we analysed. With several plans to improve its offering further, we believe Wagamama can maintain its positive perception with consumers and thus continue to generate impressive like-for-like growth," the analysts said.

In the same note, Berenberg also pointed out that the restaurant sector had picked up in May, with the market showing positive like-for-like growth for the first month of the year other than March, which faced soft comparatives due to the effects of the 'Beast from the East' in 2018.

A continuation of this trend will be beneficial for both the “leisure” brands and Wagamama, while recent improvements to the the cinema market are also expected to aid the "leisure" brands as 65% of the segment's sites are exposed to some form of leisure development.

Restaurant Group's shares were up 4.90% at 132.70p at 1159 BST.