Questor: Restaurant Group investors should keep their seat at the table as recovery picks up 

It is early days but the shares are now about back where they were when we first assessed the firm’s recovery potential at 358p in October. Patient, risk-tolerant investors could yet be rewarded for backing chief executive Andy McCue’s strategic review of the group.

In the first 20 weeks of this year sales fell across the group by 1.8pc on a like-for-like basis, a much lower rate of decline than the 3.9pc drop suffered in 2016 (and the 5.9pc slide seen in the fourth quarter of last year alone).

This offers encouragement that Mr McCue can turn the group around.

Even if it is too early for March’s new plan – and in particular new menus at Frankie & Benny’s – to have had an impact, the prime location next to cinemas enjoyed by just under half of the group’s sites has again showed its worth, even if management has sensibly stated that it is not relying on strong film releases to carry it through the year.

The firm has very little debt and banking covenants are under no threat, so time is on the side of both management and investors.

In the latter’s case, an unchanged full-year dividend of 17.4p equates to a 4.7pc yield, so they are being paid to wait to see how this transitional year for the group develops, while analysts’ forecasts of a second straight 19pc fall in underlying earnings per share suggest that expectations are still low.

The restaurant business is a cut-throat one but the strong balance sheet provides room for manoeuvre and the early signs are promising.

Questor says: hold

Ticker: RTN

Share price at close: 345.2p

Update: Parity

Shares in Parity, the consultancy and recruitment specialist, have risen by more than a fifth since our first look at the shares in February and a trading update last month suggested that the turnaround story was also on track here, even if the firm’s balance sheet offers less of a safety buffer than at Restaurant Group.

John Conoley, the chairman, said the focus on the higher-margin consultancy arm had begun to pay off, with the result that trading had been in line with expectations for the first quarter of the year. Better still, he reaffirmed that cash generation had remained a priority so that the company could reduce its debts.

This is a key plank of the turnaround strategy and the investment case: lower debt means less risk and less risk can mean a higher multiple of earnings for the valuation – Parity currently trades on a forward price to earnings (p/e) ratio of just nine.

Net debt came down to £4.4m from £7.4m last year, although the pension deficit rose to £1.8m. Further improvements in profit and cashflow could help on both counts and if debt does come down then Parity’s £12m market value could start to look low compared with its £90m-plus in sales.

Questor says: hold

Ticker: PTY

Share price at close: 11.25p

Update: Watkins Jones

Shares in Watkins Jones, the student accommodation provider, are trading close to record highs following a robust set of first-half figures, which lived up to lofty expectations and featured a substantial increase in the interim dividend. Even though sales fell, as a result of timing issues, Watkin Jones generated a 29pc increase in underlying earnings per share.

Coupled with net cash on the balance sheet and strong forward sales, that progress encouraged the board to announce a 65pc increase in the interim dividend to 2.2p a share, supporting analysts’ consensus forecast for an increase in the full-year payment to 6.3p from 4.4p.

That would equate to a 3.5pc yield. Although they have risen by more than 40pc since our initial tip in January, the shares are still not expensive on a forward p/e ratio of less than 14.

Questor says: buy

Ticker: WJG

Share price at close: 181p

Russ Mould is investment director at AJ Bell, the stockbroker