Food and drink concessions star turn SSP (SSPG) skips 3% higher to 677.4p after serving up another strong trading update for the third quarter to June, prompting Shore Capital to push through its third round of forecast upgrades this financial year.
Piloted by well-regarded CEO Kate Swann, formerly the boss at WH Smith (SMWH), SSP is expanding globally with operating margins moving higher and sounds confident about the future.
Indeed, the company anticipates ‘like-for-like sales growth for the group to remain in the region of 2% to 3%’ and this upgrades full year guidance for the expected contribution from new contract wins.
A market leading operator of food and beverage outlets in airports, train stations and motorway service stations around the globe, SSP serves a captive audience and boasts resilience as a result.
SSP sports franchise or licence agreements to operate at airports and train stations under many well-known brands including M&S Food, Starbucks, Burger King and Yo! Sushi. Its own brands include Upper Crust, Le Grand Comptoir and Ritazza.
Many people waiting for their plane or train may not have the time to go to the high street to find cheaper food or drink, so their only alternative is to use the airport or station facilities typically dominated by SSP or have nothing.
STRONG THIRD QUARTER SHOWING
For the third quarter, total group sales skipped 7.3% higher at constant exchange rates, reflecting 2.7% like-for-like growth, new contract wins and a boost from last year’s acquisition of part of Stockheim, a Germany-based travel concessions business.
Ongoing growth in air passenger numbers drove growth in the UK and Continental Europe, although SSP concedes ‘trading in the rail sector continues to be softer, with some additional impact from strike action in France.’
Air sector growth proved a tailwind for the North America business, while ‘in the Rest of the World, the trends seen in the first half have continued into the third quarter with good like-for-like sales growth, including in Hong Kong, Egypt and India.'
The quarterly contribution from new contracts in North America and the Rest of the World was ahead of prior guidance and given encouraging trading in new outlets and the programme of new unit openings for the rest of the year, SSP upgrades full year net new contract win guidance (basically the year-on-year revenue impact from new outlets opened and existing units closed) from 4% to ‘around 4.5%-to-5%’.
‘Looking forward, whilst a degree of uncertainty always exists around passenger numbers in the short term,’ says SSP, ‘we are well placed to continue to benefit from the structural growth opportunities in our markets and to create further shareholder value.’
Shore Capital upgrades its year-to-September 2018 sales, profit before tax (PBT) and earnings per share estimates by £20m, £5m and 0.8p respectively to £2.54bn, £179m and 24.3p. ‘This is our third upgrade to estimates this financial year (we were on PBT of £160m at the turn of the year),’ enthuses analyst Greg Johnson, forecasting growth in PBT to £192.4m next year ahead of £207.8m in financial year 2020.
‘We have a buy stance on SSP highlighting the structural growth opportunities, continued robust momentum and scope for further returns to shareholders,’ says Johnson, also seeing scope for a further £100m-plus special dividend. The broker’s discounted cash flow (DCF)-based valuation implies fair value for SSP of around 725p per share, though Johnson stresses ‘this could prove conservative given ongoing momentum.'
