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Investing.com -- UBS Global Research upgraded its rating on SSP Group Plc (LON:SSPG) to “neutral” from “sell” rating, saying recent declines in the company’s share price appear to have largely reflected market concerns over near-term growth.
SSP shares have dropped nearly 20% from their peak before the third-quarter trading update amid questions over the group’s ability to meet its 4-5% like-for-like sales target.
“While we continue to see downside risk to sell side consensus estimates, the risks screen as largely priced in by the market and consequently we upgrade to Neutral with an unchanged price target of 170p,” the brokerage said.
The company achieved 4% growth over the nine months ending June, with aviation volumes slowing in July and August.
Passenger volumes increased roughly 1% in the U.S. and U.K., slightly above the 0.5% growth seen in the U.S. over the first nine months of FY25, but below the U.K.’s 2.5% growth over the same period.
In India, volumes declined about 3.5% in July and August, compared with nearly 8.5% growth in the prior nine months.
Early September data suggest U.S. volumes have risen to around 2.5%, though forward-looking capacity indicates little potential for a significant uptick.
Investor focus is shifting to FY26, with attention on the group’s medium-term guidance of roughly 3% annual like-for-like growth and 20-30 basis points of margin expansion, compared with consensus expectations of 2.9% and 40 basis points, respectively.
UBS said capacity for the first quarter of FY26 appears higher than in the fourth quarter of FY25, but downward revisions are possible, and any weakening of UK consumer spending could create further headwinds.
SSP’s like-for-like revenue growth slowed to 3% in the third quarter from 5% in the first half of FY25. Data from UBS Evidence Lab and Indian regulators show continued pressure in India, while TSA data indicate modest growth in U.S. volumes.
U.K. airports reported roughly 1% growth over the summer months. Rail volumes in the U.K. remained stronger, with mid-single-digit growth, but rail represents only about 15% of total revenues.
Forward-looking capacity data point to low growth across North America, the U.K., and India, though Europe shows more positive trends.
UBS noted that since the first quarter of FY24, capacity growth and SSP’s like-for-like revenue growth have tracked closely, particularly in North America, providing directional insight into future performance.
UBS maintained a 170p price target, derived from a discounted cash flow model using a 9.5% weighted average cost of capital and 3% long-term growth.
On a FY26 basis, SSP shares trade at an estimated 12.5x PE and a 4.5% free cash flow yield, below peer Avolta’s 7%. On a stub basis excluding the listed Indian asset, SSP is estimated at 8x PE with a 7.5% FCF yield.
The report highlighted that SSP could execute a buyback of around £70 million, reducing the share count by roughly 5%, though higher debt costs limit EPS accretion.
EBIT for FY25 is forecast at £231 million, near the lower end of the group’s guidance of £225-255 million. Revenue estimates are 1-3% below consensus for FY25-27, with EBIT estimates 1% below in FY26 and 5-6% below in FY26/27.
UBS said SSP remains well positioned to benefit from passenger volume growth through existing operations and new contracts, but near-term pressures in the U.S. and India, which together contribute roughly half of consolidated EBIT, could restrain earnings.