SSP Group - from baguettes to caviar

SSP Group: Talk about a name that gives you no clue what they do! Well, they provide food and drink here and abroad (operating in 29 countries) at travel hubs such as airports, motorway service areas and railway stations, under around 300 names (often franchised in or out) including Millie’s Cookies, Burger King, M&S Simply Food and Upper Crust. The extra interest is that Kate Swann left her very successful tenure at WH Smith’s in order to take SSP on, so she must see repeat potential in it. The group is not a pure newbie and can trace its roots back over 60 years through ownership by Compass Group, through to its origins within the Scandinavian airline business SAS. SSP floated earlier this year and are one of the rarities that have seen a rising share price amid the glut of over hyped issues. These results are for the year to 30^th September 2014, showing flat revenues due to sterling strength (but +4.0% on constant currencies), with operating profits up 12.3% to £88.5m (but +20.8% on constant currencies). The operating margin improved 50bps to 4.8%, “reflect[ing] good early progress” in running the business and implies that there is more to come. Post the float net debt of £371.1m is a manageable 2.3x EBITDA, with good cash generation of £51.5m helping too. Having only floated in July there is no dividend, but FY2015 will be a full year’s worth.

Given the exposure to currency risk, the economic sensitivity of travel and the ever-present threat of security and/or health risks for travellers, short term forecasting must be prone to volatility. However, leisure and business travel looks set to grow steadily (mid single digits p.a.?), even in a world concerned about carbon footprints. Passengers are spending longer at airports (as security needs stretch out check-in procedures) and service areas/railway stations are making more effort to capture discretionary spend. In a highly fragmented market, there is plenty of scope for growth, with many travel outlets offering very indifferent value for money to travellers.  

Having floated at 210p, the shares are now at 280p. Consensus forecasts for FY2015 are for 12.8p of eps, but that seems to cover a wide spectrum as analysts tweak their models. At this level the PE is 21.9x, whilst a two times dividend cover would generate 6.4p for a yield of 2.3%. These are not cheap metrics, but I feel that they are probably over-cautious or just plain mean. SSP is a stock to put on the radar screen for now, whilst waiting for upgrades and/or any price weakness. (Neil Cumming^, 4^th December 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower