FTSE 100 higher as miners dig Chinese inflation reading, The Restaurant Group to offload Frankie & Benny’s and Vistry pivots to affordable housing

“The FTSE 100 was firmly on the front foot on Monday, with the miners doing the heavy lifting as consumer prices in China edged into positive territory,” says AJ Bell Investment Director Russ Mould.

“The reading, which emerged over the weekend, implies an improvement in the commodities demand picture and in turn provides a boost to the resources sector.

“US inflation numbers and the latest decision from the European Central Bank dominate the agenda over the remainder of the week, before the Bank of England and Federal Reserve take centre stage next week. This could be a defining period for stocks as we get some clarity on whether the rate hiking cycle is truly at or near its end or if there is more work to do in the battle against inflation.

“Until the market knows where the terminal interest rate lies and what the new normal is in terms of borrowing costs, we should probably steel ourselves for further volatility.”

The Restaurant Group

“Paying a third party to take two brands off its hands shows how The Restaurant Group was desperate to get its finances in shape and remove the shackles which have weighed it down for years.

“Frankie & Benny’s and Chiquito were once the jewels in the crown for the business, helping it to grow rapidly across the UK and cater for a growing appetite among the public to eat out.

“The two brands got left behind a decade or so ago when there was a big wave of new casual dining propositions including posh burgers and burritos packed with fresh ingredients. Its sites became tired and the menus bloated with overpriced fried food.

“Add in the combination of paying top dollar to buy Wagamama and the disruption from the pandemic, and The Restaurant Group found itself in a tricky situation financially.

“Something had to change and that meant downsizing the arm which housed Frankie & Benny’s and Chiquito. It wasn’t enough and now the group has gone for the nuclear option – jettisoning the brands from its portfolio, albeit at a cost of £7.5 million to The Restaurant Group.

“The group will be left with Wagamama, a chain of posh pub restaurants and various concessions in airports. All of these have brighter earnings prospects and give The Restaurant Group a better footing with which to pay down debt and a platform for stronger financial growth in the future.

“It’s no wonder the share price has shot up on the news, rising 7% in early trading. At the same time, it is worth remembering the group has been under pressure from activist investors to shake up the business.

“These parties should be pleased at the disposal news, noting that they’ve already won the battle to oust chair Ken Hanna who last week said he would not seek re-election at the AGM next year. The activists’ work might not be finished, however, as there have been calls in the past to sell the Brunning & Price pub chain and its valuable property. That transaction might still be on the menu for the business.”

Vistry

“Having another string to its bow is proving useful to developer Vistry. Unlike rival housebuilders it has a significant regeneration and affordable housing footprint which it can pivot to when times are tough.

“Its partnerships business teams up with local authorities, the government and housing associations to deliver homes for lower income households. The acquisition of Countryside Partnerships in November 2022 looks increasingly well timed.

“Affordable housing is much less sensitive to interest rates and the economic backdrop and this should give Vistry some solid foundations which its peers could only dream of right now – reflected in a resilient set of first-half results.

“It says something stark about the state of the property market that Vistry is going to stop building private homes for the foreseeable future. By doing so it can take costs out of the business by scaling back its workforce and free up capital to such an extent that Vistry is able to commit to paying out £1 billion to shareholders over the next three years.

“The company signalled its own view on its current market valuation by announcing the first tranche of these returns will be made in the form of purchasing its own shares.”

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