The last few months have seen the share prices of many travel-related firms plummet on renewed fears about the manner of our exit from the EU. One exception to all this — until today — has been global food and beverage concessions business SSP Group (LSE: SSPG).
Although news that its highly-rated CEO will be leaving the business has seen some investors flee this morning, I still think the latest set of hugely positive full-year numbers are reason enough for existing holders to retain the FTSE 250 constituent in their portfolios.
Profits take off
The company achieved revenue of a little under £2.57bn in the year to the end of September — a 9.5% rise when exchange rate fluctuations are taken into account. Underlying pre-tax profit advanced 24% to £184.4m, also at constant currency. Thanks to a growth in the number of people flying (many of SSP’s outlets are located at airports), like-for-like sales rose 2.8%.
While unlikely to feature on most income investors’ radars, SSP also announced a final dividend of 5.4p per share. When added to its interim payout, this brings the total cash return for the year to 10.2p — up almost 26% on the previous year. Based on yesterday’s closing price of 685p, this equates to a yield of 1.49%. Yes, that’s hardly massive compared to some returns offered by firms in the FTSE 100, but a payout ratio of just 40% does mean there’s ample room for dividends to grow.
In addition to this, the company also announced a £150m special dividend and share consolidation this morning, highlighting just how confident management is on SSP’s future prospects. Indeed, outgoing CEO Kate Swann stated that trading in the new financial year had been in line with expectations so far, even if “a degree of uncertainty always exists around passenger numbers in the short term.” She added that SSP had an “encouraging” new business pipeline, which includes sites at airports in Brazil, India and the US.
Already priced at frothy 26 times forecast earnings for the next financial year, I’d probably be disinclined to begin building a position at the current time. But the fact that Brexit is unlikely to impact significantly on business over the long term (SSP’s captive customers won’t suddenly disappear) suggests that existing owners shouldn’t be panic-selling either.
Back on the watchlist
While SSP’s share price has remained relatively resilient up until now, the same can’t be said for budget holiday operator On the Beach (LSE: OTB). The mid-cap has lost 40% of its value over the last six months.
This isn’t all the fault of Brexit. In its most recent update, the business blamed the football World Cup and a surprisingly sizzling UK summer for reducing demand for holidays abroad.
Nevertheless, I feel On the Beach is being unfairly dragged down alongside other operators despite having a far more flexible business model and drastically lower fixed costs. As the company itself stated, the aforementioned fall in demand has been resolved through a reduction in marketing spend — thus meaning that revenue growth has actually “remained strong.”
Trading on 15 times earnings for the new financial year (which commenced in October), On the Beach could still have further to fall if Theresa May’s draft deal with the EU is rejected by parliament. For now, however, it’s earned a place on my watchlist.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.