The Investment Column: Take a bite of the owner of Frankie and Benny's

Vantis; Greggs
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Our view: Buy

Share price: 119p (-55.75p)

Does anyone listen to analysts any more? You have to wonder after most of the City's finest stuck to their "buy" advice on Restaurant Group, despite an unfortunate but not unexpected trading blip over Christmas.

Did the market take notice? Not a bit. The shares crashed 31 per cent. As one analyst observed: "Given the battering the shares have taken over the last nine months, they should have bounced on what was essentially neutral/realistic news."

What Restaurant Group, the operator of Garfunkel's and the Frankie and Benny's chains, told the market was that sales growth in the final quarter of the year slowed to 1 per cent, giving an overall improvement on the year of 5.5 per cent – its best performance for 10 years.

The company expects full-year results to be in line with current forecasts of around £42-£44.9m.

But on a day Marks & Spencer spooked the market with its own poor trading news and after an overnight slump on Wall Street, any shares exposed to retail spending were easy prey.

Confidence in the high street has been badly shaken. Regent Inns and Clapham House, owner of the Gourmet Burger Kitchen and Tootsies chains, have fallen sharply on profit warnings. Estimates for Restaurant's 2008 profits have been lowered by 8 per cent to around £46m.

But unlike Clapham House, which has scrapped its expansion plans, Restaurant Group is pressing on with its opening programme, emboldened by a refinancing exercise giving it a £120m war chest on improved terms.

The company is also less vulnerable to high-street activity. Its restaurants are mainly sited in either leisure centres, close to cinemas which generate additional trade, or in airports where they benefit from longer opening hours.

At 119p, the shares sell on under 8 times expected earnings for the current year. This looks cheap when comparisons show PizzaExpress was sold to private equity in 2003 on 6.6 times and Ask Central for 8 in 2004.

Recovery may not be immediate, but the shares must surely soon head back the way they have come. Buy.


Our view: Hold

Share price: 141p (-3p)

You don't expect too much excitement from a professional services and accountancy group, and Vantis is unlikely to be an exception.

Vantis offers a range of tax and accountancy advice for small and medium-sized firms as well as wealthy individuals. It provides advice for firms in trouble and has a corporate finance wing to aid more ambitious clients with their growth plans.

Vantis is keen to sell clients more of its services, especially those which command higher fees. The present climate is tailor-made for Vantis to grow its business recovery side – helping firms facing bankruptcy and debt problems.

The immediate challenge is to try and attract more high-profile clients which will help it climb up the ladder of the UK top-10 accounting and business advisory groups. It is currently placed 13th.

Vantis is keen to grow by making acquisitions, but was unable to find any suitable targets during the first half when it achieved an 11 per cent improvement in turnover and a modest 3 per cent rise in pre-tax profits to £6m, virtually all from organic growth.

The advance in profits was held back by the increased cost of recruiting more staff who should make a positive contribution later while fees from business recovery work have yet to kick in.

Earnings tend to be slanted more towards the second half. Estimates of around £13.5m leave the shares on just over 8 times earnings. An acquisition or three should inject a little more excitement into the price. For now, hold.


Our view: Hold

Share price: £45.44p (+34p)

Greggs the bakers sells comfort food such as cheese and onion pasties, sausage rolls, doughnuts and sandwiches for office workers in a hurry, on a budget, and not too concerned about their waistlines.

So in these belt-tightening times, it is no surprise to see Greggs unbuckle a strong second-half increase of 5.8 per cent in sales, taking the year's rise to 5.3 per cent.

However, a good part of the increase was down to the rising cost of key ingredients such as wheat, dairy and protein. If this is stripped out, the second half was probably up around 1.5 per cent. Full-year profits should have gone up from £40.2m to around £47.4m.

Greggs, which also trades as Bakers Oven, is a big player in the food-to-go market. It is benefiting from opening more shops on a Sunday and a successful marketing campaign. There are 1,368 shops with scope for 2,000 or more. There is a small chain in Belgium, which could provide a springboard for greater expansion in Europe.

The company has been quietly introducing a healthier options range of wraps, rolls and sandwiches, but admits there is no great clamour from customers.

Greggs has no plans to split its heavyweight shares which have eased from over £53 last year to £45.10, where the business is worth £480m.

Rising costs have troubled Greggs in the past and investors need to be alert to signs of fresh increases. Hold.