SSP Group Plc - Operating with Decent Liquidity Position

SSP Group Plc (LON: SSPG) is an FTSE 250 listed Company, which operates outlets of food and beverage items in travel locations globally.

The Company will announce the preliminary results for FY 2020 on 18^th November 2020.

Update on Trading Performance (1^st July 2020)

The Company witnessed a lower level of passengers due to travel restrictions, and if the level of recovery remained low, the Group would cut up to approximately 5,000 jobs. The Company proposed the introduction of air bridges and the start of the summer holiday season might lead to a limited return of short-haul air travel. SSPG anticipate only 20% of units would be opened in the UK by autumn. The Group’s sales in April 2020 and May 2020 were down by 95% year-on-year (when the global lockdown continuing), while June 2020 had seen a slight recovery and decreased by approximately 90% as compared to the last year. The Group expects an operating loss of between £180 million and £250 million in the second half of 2020, along with an 80%-85% year-on-year revenue drop and underlying EBITDA in between £120 million to £190 million. With gradual easing in lockdown, the Company reported strong performance in North America and Continental Europe. The Group has a total liquidity position of around £756 million, including available liquidity of £413 million and additional facilities of approximately £343 million.

Share Price Performance


Daily Chart as of July 17^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

SSP Group Plc shares were trading at GBX 244.00 at the time of writing before the market close (at 12:49 PM GMT+1) on 17^th July 2020 and down by 1.53% versus the previous day closing price. Stock 52 week High and Low were GBX 725.00and GBX 136.80, respectively.

From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology
 

Key Risks

The performance of the Group could be obstructed by macro and geopolitical factors. The impact of COVID-19 has been quite significant over the Company, which has been resulting in operating losses.

Conclusion
The Group’s operations are impacted by the outbreak of covid-19 and imposed travel restrictions to contain the spread of the virus. To tackle the uncertainty the Company has sufficient liquidity and taken multiple steps to mitigate the financial impact such as suspended buyback programme, no interim dividend declared and salary reductions. During the first half of FY20, the Company also won several new contracts, which strengthened the pipeline to generate value in future. The Company’s focus is to resume operations gradually by keeping the cost bases lower and invest in long-term opportunities. The Group has shown an early sign of recovery in some parts of the world and is starting to open certain units, as the demand picks up.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 244.00 (as on 17^th July 2020, before the market close at 12:49 PM GMT+1)  with lower double-digit upside potential based 1.50x Peer EV/NTM Sales (approx.) on FY20E Sales (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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