The UK government announced its plans to ease lockdown restrictions in England last month, causing the Restaurant Group (LSE:RTN) share price to jump by nearly 10%. Under this new timeline, restaurants and pubs are set to reopen their doors to dine-in guests as of April this year.
Needless to say, this is fantastic news for Restaurant Group and the hospitality sector in general. So should I consider adding the stock to my portfolio? Let’s take a look.
Covid-19 impact on the Restaurant Group share price
Restaurant Group, as the name suggests, is an operator of restaurants and pubs around the UK. In fact, it’s the UK’s largest independent restaurant company, with nine popular brands, including Wagamama, Frankie & Benny’s, and Brunning & Price. In total, it has over 500 sites, with each brand offering a different set of delicacies from around the world.
There’s no question that Covid-19 has decimated the hospitality industry. With all its sites being closed down at the height of the pandemic, the Restaurant Group share price plummeted by nearly 70% within a matter of months.
Since then, things have improved, and the share price is now almost back to pre-pandemic levels. As of July last year, nearly all of its sites reopened, with 200 offering a delivery and takeaway option. Also, something that I find quite reassuring is despite the continuous disruptions, Wagamama restaurants achieved 11% growth in Q3 sales.
Many of these restaurants were closed once more following the Christmas lockdown. But it’s encouraging to see the firm quickly rebooting itself and achieving growth at the same time. This certainly makes me hopeful for the Restaurant Group share price when its locations open once again in April.
Risks to consider
The firm appears to have adapted well to the Covid-19 environment. But it certainly suffered some damage. 125 of its locations have been shut down permanently, with another 85 potentially closing depending on rent negotiations.
In addition, Restaurant Group has borrowed more money from its credit facilities to help keep the lights on.
What I find particularly concerning is that a significant amount of debt is maturing in 2022. Given the chaos caused by the pandemic, it’s very likely that the company will have to refinance the loan. Let’s suppose infection rates rise and the government’s timeline is extended. In that case, the refinancing terms could become very restrictive on the company, with the Restaurant Group share price suffering for it.
Another risk to consider is Brexit. The business’s supply chain extends into Europe, which with the new custom checks coming in place, could cause significant delays. New suppliers can eventually be found to fulfil orders within the UK. But until then, many of its sites could likely lose revenue as customers may not be able to order certain menu items.
The bottom line
Personally, I’m not particularly convinced that Restaurant Group is a good investment for me, even at the current share price.
The hospitality industry is tough to thrive in, and I simply believe there are far better opportunities to profit from the market recovery. Therefore, it’s not a stock I’ll be adding to my portfolio any time soon.
