Shares in aviation companies have failed to recover in the four years since Covid upended their fortunes. Although figures from the International Air Transport Association (IATA) show that the number of passengers is close to hitting pre-pandemic levels, airline stocks are, in the main, still flying well below their earlier trajectory. Oil price volatility means that pattern is likely to continue.
But travel is on the up, as IATA’s figures show, and the FTSE 250-listed SSP, which runs thousands of restaurants and cafés in train stations and airports in 36 countries, looks set to capitalise. It has been a slower burner than anticipated; I first tipped the stock in June 2022, when only three quarters of SSP’s estate had reopened after the pandemic. Then it was trading at about 260p; now, SSP — whose brands include Upper Crust, Ritazza and Millie’s — has dipped lower, with its shares changing hands at about 220p, 10 per cent lower than a year ago.
The travel food giant may never journey back to its 600p pre-Covid price — three emergency fundraisings during the pandemic have taken their toll — but it can certainly rise from its current low level. SSP’s price-earnings ratio in 2015 and 2019 was an average of 29 times, and it’s now 16 times next year’s forecast earnings. Yet the company is growing successfully, both organically and via acquisitions, including buying an airport food specialist in Australia last month and one in Canada at the end of 2023. Like-for-like sales are expected to jump by as much as 10 per cent for 2024 to £3.5 billion, with underlying operating profits of between £210 million and £235 million.
The momentum this year in revenue growth has been spread across the world, with more than half the sales being generated in the US and Asia. In America, revenues were up by more than 30 per cent in the first three months of 2024, with SSP outlets now found in more than 50 major US airports, up from 38 at the start of last year. Workers returning to commuting into the office also helped UK revenues rise 22.5 per cent.
“Given the momentum in sales and [underlying earnings], we view the shares as being very attractive,” Douglas Jack, an analyst at broker Peel Hunt, said.
SSP is increasing investment, spending £280 million this year, after its purse snapped shut in the aftermath of the pandemic. That won’t help the company’s debt pile — almost £400 million plus £1 billion in lease liabilities — but it’s less precarious after a refinancing deal last year, and the investment in outlets should boost sales in the long term.
“With travel still recovering and strong pricing power continuing, we expect growth to continue into 2024 and inflationary pressures to be managed,” Anna Barnfather, leisure analyst at the investment bank Liberum, said.
Dividend payouts were unleashed again last year and the momentum is now with SSP. Buy.
