Shares in Restaurant Group (LSE: RTN) have tumbled by as much as 14% today after it released a rather mixed update.
On the plus side, the company said it expects full-year earnings and cash flow for 2015 to be substantially ahead of the prior year, partly as a result of sales growth of around 8%. Restaurant Group opened 44 new restaurants in 2015 and they’ve posted impressive trading results thus far. As a result, it expects profit for the full year to be in the middle of market expectations.
However, it cautioned on the outlook for 2016 with concerns regarding lower like-for-like (LFL) sales growth. A key reason for this caution is the fact that recent data from the retail sector and the wider economy has hinted that the last few months have been challenging for many consumer-facing businesses. And with a national living wage, EU referendum and global uncertainty weighing on the macroeconomic outlook, Restaurant Group is less optimistic than a year ago.
With its bottom line due to rise by 11% next year and Restaurant Group trading on a price-to-earnings growth (PEG) ratio of 1.5, it appears to be a strong buy at the present time. Certainly, more volatility could lie ahead, but for long-term investors, now seems to be an opportune moment to buy a slice of a high quality business.
Primark and sugar – adding sweetness for ABF?
Meanwhile, ABF (LSE: ABF) released an upbeat update but was hit by currency headwinds in the 16 weeks to 2 January. Excluding the impact of a strong dollar and weak euro, total sales rose by 3% during the period, with Primark continuing to lead the way with growth of 7%. And while ABF’s agriculture division was hurt by lower commodity prices, its sugar business continues to make strong progress with its performance improvement programme.
With ABF forecast to post a fall in its bottom line of 2% in the current year, its shares may struggle to continue the rise that has seen them soar by 168% in the last five years. That’s especially the case since ABF trades on a price-to-earnings (P/E) ratio of 30, which indicates that it’s more of a sell than a buy.
Wait and see
Also reporting today is JD Sports (LSE: JD) with the fashion retailer upgrading expectations for the full-year after a strong Christmas trading period. It experienced a rise in LFL sales for the five weeks to 2 January of 10.6% and now expects profit for the full year to be ahead of current guidance. This has had a positive impact on the company’s share price, with it rising by over 4% at the time of writing.
Although the outlook for the UK economy may be somewhat uncertain, low inflation plus relatively high wage growth means that consumer spending is likely to remain robust in 2016. However, with JD Sports trading on a PEG ratio of around 2.7, its shares appear to be rather expensive at the present time. Therefore, while it’s a high quality business that’s performing well, it may be prudent to await a keener share price before buying following its gains of 135% in the last year.
