How Brexit has contributed to 25% profit gain for SSP Group plc

SSP Group PLC (LON: SSPG) looks set to be a beneficiary of Brexit.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

SSP Group (LSE: SSPG) has reported stunning results today which were boosted by a weak pound. The operator of food and drinks outlets in travel locations recorded a rise in underlying profit of 24.6% for the full year, which could move higher in future due to continued operational improvements and the further weakening of sterling. However, is this already priced in to its current valuation?

Strong financial performance

As mentioned, SSP has enjoyed a highly successful year. Its like-for-like (LFL) sales growth of 3% was driven mainly by a rise in air passenger travel, but also by improved retailing initiatives. Its underlying operating profit rose by 18% as new contract openings and operational improvements helped to boost operating margins by 70 basis points. However, when weaker sterling is factored in, operating profit growth was 24.6%, which shows that it could be a good stock to hold during Brexit.

A key reason for this is SSP’s international exposure. While Brexit could trigger a slowdown in global economic growth, SSP should offset this by benefiting from a currency tailwind. The Federal Reserve is expected to raise interest rates in future as it seeks to moderate the US recovery. However, the Bank of England is due to adopt a more dovish stance. When allied to the likelihood of higher uncertainty for the UK economy, this could cause sterling to weaken.

Should you invest £1,000 in Restaurant Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Restaurant Group Plc made the list?

See the 6 stocks

A fully valued share price?

Looking ahead, SSP is forecast to record a rise in its bottom line of 9% in the new financial year. While there is scope for this figure to increase thanks to weaker sterling, the company’s valuation appears to fully factor in its growth potential. For example, it trades on a price-to-earnings growth (PEG) ratio of 2.3, which indicates there is limited upside ahead.

Furthermore, SSP’s income profile is perhaps less stable than many investors realise. While it is making progress with operating improvements and new retailing initiatives, it’s highly dependent upon passenger numbers at its locations. Uncertainty exists surrounding the short term outlook for what is essentially a cyclical industry, so it would be unsurprising for investors to de-rate SSP’s valuation in the coming months.

A superior opportunity?

Restaurant Group (LSE: RTN) operates within the same sector as SSP and trades on a lower valuation. Restaurant Group has a price-to-earnings (P/E) ratio of 11.7 versus 20.7 for SSP.  Therefore, it may appear to have greater rerating potential. However, Restaurant Group’s earnings are due to fall by 11% this year and by a further 2% next year. And with inflation forecast to rise over that time period and cause a squeeze on disposable incomes in the UK, Restaurant Group’s performance could quickly deteriorate.

So while SSP is not cheap, it is a better buy than Restaurant Group. Despite uncertainty existing regarding passenger numbers in the short term, weaker sterling plus operational improvements should lead to a rising share price over the coming years.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of SSP Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian woman with head in hands at her desk
Investing Articles

With the FTSE 100 and S&P 500 nearing all-time highs, is it only a matter of time until a stock market crash?

Edward Sheldon's expecting some stock market volatility in the second half of 2025 given recent moves higher, but he's not…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Here’s why I’m getting excited about the Vodafone share price!

As a long-suffering shareholder in the telecoms group, our writer explains why he’s becoming increasingly enthusiastic about the Vodafone share…

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

Investors could get a second chance at this top passive income stock

Having missed an opportunity to earn 9% a year in passive income by buying Admiral shares, Stephen Wright is on…

Read more »

Fathers Walking With Their Little Boy
Investing Articles

Here’s how I could realistically turn £10,000 into a passive income worth £2,000 a month

Millions of Britons invest for a passive income. I’m no different. One day I hope to draw down on the…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

Is this FTSE 100 stock at the start of a comeback?

After underperforming for some time, Rentokil shares are starting to show signs of life. Is this the start of a…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

How to target an ISA that spits out £1,000 of passive income a month

Edward Sheldon details a simple four-step plan designed to provide an investor with passive income of £12k a year or…

Read more »

A hiker and their dog walking towards the mountain summit of High Spy from Maiden Moor at sunrise
Investing Articles

How much do you need in a SIPP to aim for a £3,000 monthly retirement income?

Discover how to start building a long-term retirement income in a SIPP by investing intelligently in quality businesses to head…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

Up 84% and down 53%! 2 innovative growth stocks on my ISA watchlist

Ben McPoland has been keeping an eye on these two growth stocks. After one has surged and the other crashed,…

Read more »