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Questor: this stock could return its entire market value to investors in little more than a decade
Questor share tip: SSP, the station and airport caterer, may be losing its star boss in Kate Swann but shareholders should hold on
Could it be Kingfisher? Or John Lewis? It is the measure of an effective leader that they are talked about in connection with vacant roles before they have even vacated their current office.
If you believe the City’s rumour mill, Kate Swann, who steps down at the end of next month from the helm of SSP, the airport and railway station caterer, could have her pick of B&Q or Britain’s most famous department store group.
Having pocketed £22m-plus since bringing the company to market in 2014 she could be forgiven for not rushing into another full-time job. Meanwhile, grateful investors in SSP are left searching for crumbs of comfort about what comes next for them.
The 73pc gain in the shares since Questor tipped them in March 2017 has been as sweet as one of Ritazza’s breakfast pastries. Including the coffee chain, the company operates more than 2,600 food units at 140 airports and 280 rail stations in 33 countries, serving 1.5 million customers every day.
SSP shares dipped when it was announced in November that Swann would be stepping down but have since regained the lost value. The question is whether shareholders should follow the boss to the exit or take another bite.
Swann’s fans point to the continued outperformance of WH Smith for evidence SSP has a bright future. When she left the stationery chain in 2013 its operating margins were 9.2pc, but under her protégé Stephen Clarke they have swelled to 11.8pc and exposure to the travel trade suggests they will expand further.
There is a similar pattern to her latest departure. The new SSP chief executive, Simon Smith, has been running its UK business and also has responsibility for the group’s Indian joint venture, TFS. Swann hired him from WH Smith, where he had worked for her expanding its international travel arm.
- Read Questor’s rules of investment before you follow our tips
Brands such as Upper Crust and Le Grand Comptoir will be familiar to rail commuters and holidaymakers but SSP also runs outlets on behalf of Starbucks and Burger King.
Also familiar has become its record of tight cost control and growing margins, which are expected to improve from here thanks to questionable technological advances such as self-service coffee machines in place of baristas in some outlets.
There is also the continuing trend for good growth in air travel – no matter that numerous airlines have hit financial turbulence this year. Among SSP’s antecedents may be the business once responsible for the dear old British Rail sandwich, but airport sales make up two thirds of group income today.
A first-quarter trading update in January reassured. Net contract gains of 3.8pc were aided by a solid performance in North America, prompting analysts at JP Morgan Cazenove, the broker, to nudge up their estimates for earnings and earnings per share by around 1pc over the next three years.
SSP won business recently at San Francisco and Seattle airports, feeding excitement about how far it can extend in North America. The region still delivers only half the revenues the company earns in continental Europe. Overall, after a stellar 2018, it looks as though net new business this year will come in lower than last at a forecast 3.3pc compared with 5.1pc. A further update is due with interim figures on May 15.
And then there are the cash returns. A £150m special dividend is due to be paid this week, following the extra £100m that was doled out a year ago. Company followers at Shore Capital, the broker, believe there are more special dividends to come.
As long as the management sticks with its medium-term target of keeping the ratio of net debt to earnings between 1.5 and two times, they calculate that SSP could return more than a quarter of its market value to shareholders in the next five years – and its entire market value in little more than a decade.
What Questor wrote two years ago bears repeating. Just like one of its Upper Crust baguettes, SSP shares are not cheap. They trade on 25 times forecast earnings for the current financial year. But investors remain hungry for more. Readers who followed our advice in 2017 should take some profits now as the business prepares for new leadership.
However, no matter that Swann has swum, SSP continues to be worth holding for the long term.
Questor says: hold, take some profits
Ticker: SSPG
Share price at close: 714p
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