Investment Column: Restaurant Group faces cocktail of troubles

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Restaurant Group

Our view: Cautious hold

Share price: 107p (+1.5p)

"The shares are a screaming buy," says Restaurant Group's chief executive, Andrew Page. Before investors rush to remember the telephone number of their broker who has been incommunicado since the financial meltdown last year, however, Mr Page admits that it might take a couple of years for the market to come to the same conclusion.

Yes, the company, which owns chains including Frankie & Benny's and Garfunkel's, has outperformed most of its peers in recent months, but the group's trading update issued yesterday said that while sales grew by 1.5 per cent in the 52 weeks to 28 December, there was a drop in like-for-like trading over the seven weeks leading up to the Christmas period.

That is why, in the short term, we think it would be risky to bet on a company that is almost entirely dependent on consumer discretionary spending in a period when many are facing redundancy. Restaurant Group is doing several things to mitigate the worst of the woe, such as tightening costs and "de-layering", which in layman's English is cutting jobs, and while this will help, even Mr Page concedes that in his 18 years in the leisure sector, he has never seen such a "cocktail" of trouble.

Most of the analysts are reasonably supportive, despite some opting to downgrade profit forecasts. The experts reckon that Restaurant Group investors can expect a dividend yield of between 6 and 7 per cent, which should be seen as a positive for buyers.

Normally we would be inclined to be buyers of Restaurant Group: in its sector, it is still a strong stock. Caution, however, should remain investors' watchword, and with some predicting economic Armageddon in 2009, we would be suspicious of any stock that relies heavily on consumer spending. Cautious hold.



MWB Business Exchange

Our view: Hold for now

Share price: 49.5p (-2.5p)

It may be slightly unfair to point this out, but back in October, just before the world's banks started caving in on themselves, analysts at house broker KBC said that a share price of 150p looked like reasonable value for MWB Business Exchange, which lets short-term office space. Sadly for MWB, and for investors on that advice, the stock closed down 4.8 per cent at 49.5p last night.

Despite the stock's poor performance, the company, which is the second biggest provider of serviced office space in the UK, said in a trading update yesterday that while the recession is certainly putting pressure on rent levels, the group managed to maintain occupancy at more than 90 per cent throughout last year to 31 December.

John Spencer, MWB Business Exchange's chief executive, reckons that companies are reluctant to commit to longer-term contracts for fear that the market makes subsequently moves against them. Only an economic meltdown holds any fear, Mr Spencer says.

If investors accept this argument, they will be encouraged to learn that the group trades at a discount to its major rival, Regus Group, and that the shares are kept more stable by virtue of parent MWB Group holding nearly 70 per cent of the stock.

All that said, investors should wait. The market is punishing small-cap stocks, regardless of any solid operating business, and we think that MWB Business Exchange has further to fall before a recovery. Hold for now.



Camco International

Our view: Buy

Share price: 17.5p (-2p)

Scott McGregor, finance director of the carbon offsetting group Camco, says that because the company is set to record its maiden profit, potential investors should buy the stock.

Maybe, but that analysis does not really explain the full picture: Camco confirmed yesterday in a trading statement that 2008 full-year numbers, to be released in March, will show that the company is now profitable, but the statement was also in effect a profits warning, with the earnings set to be weaker than analysts had previously expected.

The group says that 2009 will be a year of consolidation, and with the price of carbon credits falling in recent weeks, there is plenty for the buyer to be nervous about.

There are, however, plenty of reasons why investors should like the look of Camco. The group will be the first in the sector to become profitable, but more compellingly, with the shares falling 10.3 per cent yesterday, adding to a decline of more than 60 per cent in the last three months, the group's market capitalisation, at a touch over £32m, is just above the group's net cash position, according to Royal Bank of Scotland.

There is undoubtedly a rosy future for the carbon offsetting industry, which was always likely to have a rocky ride. For punters prepared to go for a longer-term punt, Camco is likely to be a winner. Buy.

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