The summer share price resurgence over at The Restaurant Group (LSE: RTN) continued to run out of steam in November, the stock shedding 13% of its value during the month.
Further share price weakness at the start of December has taken it to levels not seen since mid-July, below 320p per share. And this fresh downleg certainly comes as no surprise to me as The Restaurant Group’s earnings outlook remains extremely worrying.
Difficult trading conditions have prompted the Frankie & Benny’s owner to warn on profits on more than one occasion in 2016. And it’s quite possible revenues could continue to sink as rising inflation and economic cooling next year and beyond dent footfall at its eateries.
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The Restaurant Group’s profits outlook is hugely dependent on a strong retail sector due to the high concentration of its locations around shopping parks. If this wasn’t problem enough, the London business is also battling against rising competition for hungry shoppers, not to mention the structural problems created by the growth of e-commerce.
Like-for-like sales at The Restaurant Group slid 3.7% during the first 34 weeks of 2016, and I believe the firm will have to start pulling rabbits out of hats to stop the slide.
And my bearish view is shared by City brokers, who expect The Restaurant Group to follow a predicted 11% earnings decline this year with a 2% fall in 2017.
Value hunters may be drawn in by an ultra-low P/E ratio of 11 times for next year, not to mention a beefy 5.4% dividend yield. But I reckon the prospect of prolonged bottom-line woes makes the catering giant a risk too far for growth and income seekers.
Bank beached
Financial colossus Standard Chartered (LSE: STAN) also suffered a hefty share price drop in November, the stock clocking a 10% fall during the course of the month.
While StanChart’s value has since stabilised, I reckon there’s plenty of mud still in the system that could see the emerging market bank continue to fall.
The business sank after yet another murky trading update at the start of last month. Economic turbulence in Asia has kept the pressure on Standard Chartered’s top line, and the firm saw total income slump 6% during July-September, to $3.47bn. And worryingly the bank cautioned that “market conditions are expected to remain challenging.”
Concerns over the fragile state of Standard Chartered’s financial health are failing to go away too. Bank of England stress tests released this week showed that the firm had, along with RBS and Barclays, “some capital inadequacies” that could create huge pressures should another global recession come along.
While Standard Chartered has thrown the kitchen sink at restructuring in recent times, the bank clearly still has some way to go to calm investor concerns as to the strength of the balance sheet, particularly as the top line continues to struggle.
I believe a P/E rating of 16.3 times fails to reflect StanChart’s hefty risk profile, and reckon tough trading conditions could continue to hammer the bank’s share price.
