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Wagamama Memo 300620

Wagamama. Most Likely UK Casual Dining Winner Post COVID-19 Re-Opening. Wait To Buy £ 4.125% 7/2022 SSNs If They Drop To ≤ 85.00 (Yield ≥ c. 13%)
PUBLISHED: 30 June 2020
PAGES: 102
SUBMARKET: Top Reports, Top Reports, Wagamama,


Why Read?

  • Understand why Wagamama is, in our view, the best positioned UK casual dining operator to navigate the post-COVID re-opening
  • Understand what it takes to break Wagamama’s liquidity and net leverage trajectory to the point where a refinancing of its £ 4.125% 7/2022 Senior Secured Notes (SSNs) becomes difficult
  • Understand how, pre-COVID-19, Wagamama was earning a 10 year unleveraged IRR of 19% on its new restaurants and generating steady state (leveraged) FCF of c. 7-19% of net debt each year in most years
  • Understand the likely phasing of Wagamama’s restaurant re-openings for dine-in and the impact of social distancing on Wagamama’s likely seating capacity vs pre-COVID-19
  • Understand flexibility in Wagamama’s cost base and potential to renegotiate rent lower 

What’s New?

  • Detailed financial projections (including of liquidity by quarter) and assumptions across base, bear and bull cases 
  • Steady state FCF methodological framework and estimation
  • Estimation of new restaurant IRRs

Questions Answered

  • Why do Wagamama’s liquidity, net leverage and valuation trajectories suggest it should be able to refinance in our base case?
  • How would Wagamama’s prospects of refinancing look if social distancing and seating capacity constraints persist deep into FY 21?
  • How is Wagamama competitively positioned within UK casual dining on re-opening of restaurants?
  • Which is likely the bigger constraint for Wagamama on re-opening – its seating capacity constraint or demand to dine-in?
  • Should SSNs holders be worried about priming potential if Wagamama does need additional liquidity?
  • Should SSNs holders be worried about restricted payments to The Restaurant Group Plc?

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