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2 top travel stocks to beat the winter blues

With New Year now a distant memory and the cold weather showing no sign of moving on, it’s unsurprising that many of us have started thinking about planning our summer holidays. As such, now might also be a great time to take an interest in companies that cater to our love for travel.

On the rise?

Having endured a 37% fall following 2016’s referendum fallout, shares in online operator, On the Beach (LSE: OTB) have staged quite a recovery. Priced at 176p in early July last year, they now change hands for 278p. Those investors brave enough to have bought a slice of the company when our political system appeared on the verge of imploding will have enjoyed a decent return. 

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Based on today’s trading update, the Stockport company’s flexible and asset-light business model continues to attract customers away from traditional high street travel agents and legacy tour operators. 

According to the company, booking volumes “have strengthened” since the start of 2017, helping to grow year-on-year revenues for the last four months by more than 20% after marketing costs. This is despite key hotel partners in the Western Mediterranean “holding back capacity to sell in the late market”. On the Beach is now hopeful that the full benefits of its recent nationwide offline campaign will be felt in the remainder of this financial year.

With a price-to-earnings (P/E) ratio of 15 for 2017, I still think the shares look reasonably priced, if not quite the bargain they were a few months ago. Positively, this valuation drops to just 12 next year, assuming the company is able to realise predicted earnings per share growth of 27% in 2018. 

With its promising international proposition, net cash position, healthy returns on capital, improving operating margins and a rapidly growing yield, the future looks decidedly bright for On the Beach and its investors. 

Compulsive purchase?

If holiday operators leave you cold, SSP Group (LSE: SSPG) — the £1.9bn operator of food and drink concessions in airports, train stations and motorway services — may be an alternative. If the name is unfamiliar, you may recognise some of its brands, such as Upper Crust and Caffè Ritazza. The company also has licences or franchise agreements with Starbucks, Burger King and Yo Sushi.

Since this time last year, shares in the SSP have put in a stellar performance, rising a corking 43% to 404p. Unfortunately, this has left the stock trading on a rather high valuation of 22 for 2017, falling to 20 in 2018. A yield of just 1.55%, albeit healthily covered, is unlikely to attract those investing for income and almost £320m net debt on the balance sheet may constitute a black mark for some. Perhaps understandably given the industry in which it operates, operating margins are also rather low. 

Despite these drawbacks, I’m confident that the shares will continue to rise. The fact that SSP has a captive audience gives it a defensive-like quality. With outlets in over 30 countries, SSP also benefits from a degree of geographical diversification — attractive given the current Brexit-related uncertainty. With almost two-thirds of its revenue outside the UK, any drop in sterling should benefit the company. 

With earnings per share in 2018 expected to be almost double what they were in 2015, SSP is definitely on my watchlist.

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Paul Summers owns shares in On the Beach. The Motley Fool UK owns shares of SSP Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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