Jefferies upgrades SSP Group on UK and US potential
Jefferies has upgraded SSP Group to a 'buy' rating based on the food and drink concession operator's "sizzling solid potential" from structural changes in the US and UK.
Food & Drug Retailers
3,682.87
17:14 18/04/24
FTSE 250
19,450.67
17:14 18/04/24
FTSE 350
4,334.00
17:14 18/04/24
FTSE All-Share
4,290.02
16:54 18/04/24
SSP Group
201.40p
16:45 18/04/24
The investment bank, which upped its target price to 450p, carried out some sizeable consumer research that found a willingness to pay a premium at airports and stations, which was a positive for SSP as that is where it operates Burger King, Starbucks, KFC, Marks & Spencer and YO!Sushi franchises.
Falling average 'dwell times' in UK rail are expected to benefit SSP, which operates at least half of the concessions in the country's five busiest stations, as "when in a rush and consumers have a choice, 53% are more likely to pick a brand of restaurant or food/drink retailer that they are familiar with".
In the States, the opportunity is in airports, where change is afoot due to local authorities' dissatisfaction with the current level of service.
Currently Autogrill is number-one in North American air, with around eight times more revenue than SSP, in part due to the legacy monopolistic system in place at US airports.
"We estimate circa 10% of revenue is renewed each year and, as it pushes its proven localised and 400+ brand model, SSP has more to gain in our estimated £5.5bn US market that also sees a c30% blue sky if customer penetration increases."
Along with product optimisation that could lift gross margins above 70% in the medium term, analysts calculate almost 8% compound annual growth in revenue between 2016 and 2019 and reckon SSP trades at discounts to peers with its forecast p/e ratio of 21.5 for 2017 falling to 19.3 for 2018.