On Tuesday, SSP Group Plc (SSPG:LN) (OTC: SSPPF), a prominent player in the food travel sector, received a positive outlook from Kepler Cheuvreux with the initiation of coverage on the stock. The firm bestowed a Buy rating on SSP Group, coupled with an ambitious price target of GBP2.35.
According to InvestingPro data, the company's stock has shown strong momentum with impressive returns over the past three months. The move reflects the analyst's confidence in the company's strategic shift and growth prospects.
SSP Group, known for its operations in airports and train stations, has made a strategic decision to focus more intently on its air travel segment and to expand its presence in North America and Asia. The strategy appears to be working, with InvestingPro data showing revenue growth of 14% in the last twelve months. This realignment is expected to drive robust revenue growth, leveraging the ongoing expansion of airport development and increasing air traffic.
The analyst anticipates that SSP's commitment to a more efficient operating model, which includes digital enhancements and a shift towards premium offerings, will contribute to a steady enhancement of operating margins and cash flow. With EBITDA reaching $509.5 million and a gross profit margin of 29.2%, this operational efficiency, along with the company's expected return of GBP500 million to shareholders over the next few years, paints a promising picture for investors.
SSP Group's current market valuation, which is 25-30% below its historical average, is seen as an opportunity for a potential rerating, especially in light of the forecasted improvements in earnings per share (EPS) and free cash flow (FCF) generation. InvestingPro analysis indicates the stock is currently trading below its Fair Value, with 12 additional ProTips available to subscribers. The analyst's perspective suggests that these financial indicators will be key drivers in the company's stock performance.
As SSP Group continues to implement its strategic initiatives, maintaining a leverage ratio within the target range of 1.5-2x, shareholders may look forward to potential returns and a stronger financial position in the travel food industry.
In other recent news, SSP Group Plc had its price target lowered from GBP3.20 to GBP3.00 by HSBC, despite maintaining a Buy rating. This adjustment follows SSP Group's fourth-quarter results, which, according to HSBC, met expectations, particularly after a challenging first half of the year. The UK operations showed improved sales growth, while Continental Europe's results were less encouraging, leading to a reduction in the upper end of the company's guidance range.
SSP Group projects ending the year with sales of GBP3.4 billion, adjusted EBITDA between GBP335 million and GBP345 million, and EBIT ranging from GBP200 million to GBP210 million. The expected earnings per share align with the consensus estimates for the fiscal year 2024.
Looking ahead, the company's management aims to improve sales and margins for the fiscal year 2025, with plans to enhance the current estate and achieve sustainable growth. However, the anticipated impact of foreign exchange rates is a concern, with projections of affecting sales, EBITDA, and EBIT by -2.6%, -3.8%, and -4.5% respectively.
Despite challenges in Continental Europe, SSP Group is implementing a turnaround plan for the region, focusing on integrating the core estate to boost the company's capacity to drive contract returns.
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