SSP
Market value £3.2bn | Net debt £262m | Earnings 20.3p
While Kate Swann was running WH Smith, she gained a reputation as a ruthless and effective cost-cutter. Since leaving to take the helm at SSP in 2013, she has put into practice a similarly pragmatic approach, famously slicing an inch off the baguettes sold at its Upper Crust and Caffè Ritazza outlets and instructing staff to cut the number of teabags in a large tea from two to one.
Such moves might appear penny-pinching, not to say slightly absurd, but they can do wonders for margins in a low-margin business and those pinched pennies can soon add up in a company operating 2,500 outlets at hundreds of airports and railway stations in more than 30 countries.
Investors like what she has done. Although the transport caterer was forced to list its shares towards the bottom end of the published range in July 2014, floating at 210p, they opened strongly and have never looked back. A company that floated with a value a shade under £1 billion is now worth more than three times as much.
In November Ms Swann served up what one analyst described as “the full picnic”: SSP reported strong full-year results, lifted the ordinary dividend and announced a special payout of £100 million. The shares jumped more than 8 per cent to a new high of 658p on the day and by the end of December had hit 693p, although some punters started to question whether it was time to take profits, especially with Ms Swann accepting that margin growth was likely to slow in the coming year. But after a brief dip the shares have been back on the rise in the past few weeks, adding 38p yesterday to 675p, a rise of 6 per cent, after a strong first-quarter trading update. Total sales in the three months to the end of December jumped by 13.5 per cent on a constant currency basis, boosted by like-for-like growth of 2.7 per cent, net contract gains of 8.1 per cent and a 2.7 per cent rise in sales from its recent Indian joint venture.
Like-for-like sales were positive across the board, helped by increasing passenger numbers, and SSP left its forecast for full-year growth unchanged at 2 per cent to 3 per cent. Hearty stuff, but the surprise was the strength of new contract wins, with the group expecting net growth of 4 per cent for the year, ahead of the 2.6 per cent analysts were predicting.
The big question is whether the shares can continue to rise. Analysts are divided, with some saying that the stock is highly susceptible to any market pull-back. However, Shore Capital reckons the present valuation is discounting annual organic revenue growth of 5 per cent to 6 per cent and a further 150 basis points in operating margin over the medium to long term, viewing the group as “a high-quality, multi-decade growth story”.
Ms Swann previously has highlighted the scope for greater efficiencies to be garnered from installing state-of-the-art kitchens at its biggest contracts, and the latest technology is being tested across the business, with the introduction of such things as self-order terminals and self-scan checkouts.
On its present trajectory, SSP appears destined, in the not too distant future, to win promotion to the FTSE 100. That could be accelerated if Ms Swann can snare further bolt-on acquisitions similar to recent deals in India and Germany to boost its organic growth.
The shares may be trading on a chunky multiple of about 29 times this year’s earnings, but Ms Swann insists the story is still developing: “Every year since we floated, people have been sceptical about our rating and suggested that the shares can only go one way. They have. Up.”
Advice Hold
Why Given SSP’s momentum, structural growth openings and track record, few would bet against Kate Swann
Paragon Banking Group
Market cap £1.3bn | Total new lending £469.8m
Last year was supposed to be an annus horribilis for the buy-to-let property market because of tax increases and tighter lending rules. Yet Paragon, a specialist in the field, increased its lending by 65 per cent in the last three months of 2017 as it increased its market share among landlords with larger portfolios who are remaining in the sector by opting to become limited companies.
The country’s first ever buy-to-let lender, founded in 1985, also benefited from a push into mainstream retail banking services, secondhand car loans and asset finance, part of a long-term diversification strategy that it began three years ago after gaining permission from the Bank of England to open a deposit-taking division alongside its lending business.
In a trading update covering the three months to December 31, the Solihull-based company reported yesterday that its buy-to-let lending book had increased by 85 per cent to £342.9 million. Lending volumes in the overall buy-to-let market have declined during the period, as a number of bigger banks have lost market share or withdrawn after the introduction in September of tough new criteria from the Bank of England’s Prudential Regulation Authority, requiring lenders to give an extra level of scrutiny to portfolio landlords with four or more mortgaged properties.
Nevertheless, Paragon’s own mortgage business grew as it took a bigger share of the market for portfolio landlords. Over the entire quarter, loans to these “professional” borrowers made up 66 per cent of its mortgage advances. However, by the end of December it reported that this had risen to 79 per cent, after the PRA rule changes began to be felt.
The company’s decision to turn itself into a regular bank also is paying off. Its retail deposit base rose by 98 per cent from the prior year’s figure, topping £4 billion and beating analysts’ expectations.
Other areas of its business also expanded. By concentrating on the market for secondhand cars, it grew its motor finance portfolio by 40 per cent to £28.9 million over the quarter, despite a big drop in demand for new cars at the back end of 2017.
Advice Buy
Why Well-positioned to gain buy-to-let market share
