- SSP Group
- 04 February 2025 14:11:52
Source: Sharecast
"We think SSP's strategy is heading in the right direction but investors will likely have to wait a little until it pays off meaningfully," RBC said.
"We're encouraged by its action to improve its Continental Europe margin, but we do think it will be a multi-year journey.
"Likewise, we think SSP's cash generation is heading in the right direction but a more significant improvement likely won't come until next year."
RBC noted that the stock is trading at a premium to travel retail peers, hence the downgrade.
It said there are two main factors weighing on SSP's free cash flow generation. The first is higher expansion capex given a very strong new unit pipeline and the costs associated with acquisitions made in recent years.
"We are encouraged by SSP's more cautious approach to M&A now, and we think the main priorities for this year will be integration and organic expansion," RBC said. "We expect expansionary capex to remain at the 2-3% of sales level for the medium term, as SSP focuses on growth."
The second is the fact that SSP has been deploying deferred maintenance capex from the Covid-19 pandemic.
"We estimate this was circa £60mn of capex in FY24 and will be c £30mn this year," RBC said.
"However, we expect maintenance capex to return to the historical 4% of sales level next year. As such, we don't expect a meaningful recovery in FCF until FY26."
RBC maintained its 200p price target on the stock.