SSP Group
It is to SSP’s great benefit that when it floated on the London stock market in the summer of 2014, it was not, relatively speaking, terribly well run. This has allowed continuing improvements to margins from better procurement and greater efficiencies in deploying staff around its 2,000-plus concessions.
Meanwhile, new outlets are being added, mainly on the airport side, there being a limit on how many more buffets, bars and restaurants we need on the railways. The third factor is continuing like-for-like sales growth as air passenger traffic keeps growing.
All three factors were at play in the full-year figures to the end of September, even if there was some slowdown between the first and second halves. Like-for-likes were up by 3 per cent across the group, while new contracts operated in outlets that had just opened added another 1.7 per cent. Add in the effects of an extra day from the leap year and reported sales across the group were up by 5 per cent.
That second-half slowdown probably has to do with terrorist attacks in France, Belgium and Egypt, which inevitably dissuaded some from travelling, both on European railways and to Egypt, although the effect is unquantifiable and some business will have been relocated to areas such as Spain.
Meanwhile, operating margins rose from 5.4 per cent to 6.1 per cent, still a bit below some of SSP’s peers. The company, which gets less than 40 per cent of its sales from the UK, enjoyed some benefit from the lower pound as profits from elsewhere were relocated, but even at constant exchange rates operating profits were ahead by 18 per cent to £121.4 million.
SSP reported some benefit in the second half from deferrals of new openings into this financial year, mainly because of delays in opening new airports around the world. There seems to be no reason why this circle of improving margins and new outlets should not continue.
The shares, floated at 210p, hit a new high yesterday, up 29¼p at 371p. They took a bit of a thumping after the referendum amid general UK macroeconomic concerns but have recovered. The dividend yield is not much and they sell on 21 times’ earnings, which does not look cheap, but probably worth it long term.
MY ADVICE Buy
WHY The shares do not look especially cheap, but will benefit from further margin improvement and new openings as air travel grows
Acal
The market was not expecting a particularly appealing set of halfway figures from Acal, reflected in an abrupt decline in the share price from about 280p at the start of last month, but in the event the figures were not as bad as expected, with some tough upwards revisions of short-term targets.
Acal is an interesting business. It used to be a pure electronics distributor, but over the past seven years it has been transformed into a niche business that makes customised components, with a dozen acquisitions and five disposals.
The order book is at a record £94 million and Acal has responded to tough market conditions by cutting costs by £4 million a year. Margins at its biggest business, design and manufacturing, are running at above 12 per cent.
As expected, organic sales slowed by 7 per cent, but that margin improvement left pre-tax profits 7 per cent up at £7.3 million and the dividend lifted by 5 per cent to 2.45p. This produces a yield on the shares, up 6½p at 211p, of 4 per cent, while they sell on 12.5 times’ earnings. This column has recommended them in the past, but the good news appears to be in the price.
MY ADVICE Avoid
WHY Acal is transformed, but this looks to be in the rating
Shaftesbury
The resilience of the central London retail property market is truly startling, given the sell-off in property companies with exposure to the capital after the EU referendum. Shaftesbury is probably the purest play, given its refusal to move outside its Covent Garden and West End heartland.
The full-year figures seem to show absolutely no diminution in interest or demand from potential tenants and some improvement in footfall and trading through its properties, though some of this may be down to more free-spending tourists benefiting from the low pound. Net asset value per share did fall by a piffling 0.6 per cent in the second half, after a rise of 2.8 per cent in
the first.
Shaftesbury continues to reshuffle its portfolio, with three big refurbishments under way. The sort of yields it is getting are pretty much unchanged.
All this is in line with what we heard from Capital & Counties, another London retail specialist, on Monday and suggests that London is in a class of its own. Future growth for Shaftesbury will come from that gradual improvement in the properties and an expected growth in visitor numbers to the capital. There is, understandably, not much in the way of assets to buy.
The shares, off 15½p at 914½p, are unusual in trading above that net asset value, reflecting the quality of the portfolio. Investors have done pretty well over the years and know what they are getting, but at this level the shares do not warrant more than a hold.
MY ADVICE Hold
WHY Premium to NAV looks about right for portfolio
And finally ...
To the ranks of Aldermore, Shawbrook and OneSavings Bank, which target their lending at small and medium-sized companies, can be added RM Secured Direct Lending, likewise involved in this specialist and potentially lucrative area of lending. The fund is coming to the main market with the intention of raising up to £100 million in fresh money and is being advised by RM Capital Markets, a specialist in structured lending. The main attraction for investors is a yield promised to be about 6.5 per cent.
