Food outlet firm to really fly at new airports abroad
OVER the past three months, millions of holidaymakers have spent hours at airports and railway stations across Europe and beyond. Arriving early, waiting for delayed flights or whisked through security faster than expected, they have mostly whiled away their time, shopping, eating and drinking.
Many will have eaten or drunk at restaurants, bars and cafes operated by a company few people have ever heard of: SSP. Floated in July 2014, it runs about 2,000 outlets at 124 airports and 270 stations worldwide.
Some brands belong exclusively to the group, such as Millie’s Cookies, Upper Crust and Caffè Ritazza. But in many cases, SSP uses a franchise model, running sites for well-known names such as Nando’s, Burger King, YO! Sushi and Starbucks and paying these companies a royalty in return. SSP was also the first to open an M&S Simply Food outlet in a travel location – Liverpool Station in 2001. Now it runs stores around the country in stations, airports and hospitals.
The group works with small chains, local cafes and individual restaurateurs, too, so that eateries in airports and stations are not entirely uniform.
Run by Kate Swann, former chief executive of WH Smith, SSP shares are 303p. They have done well since flotation but should continue to flourish. Swann, who was credited with turning round Smiths, joined SSP just two years ago. Since then, she and her team have constructed a strong plan to expand the company.
SSP was initially part of catering giant Compass and built its reputation as an operator of fast-food joints in railway forecourts. It was sold to a Swedish private equity firm in 2006 and expanded over the next eight years, moving into more stations and airports while increasing the number of different outlets it manages.
Today, it has about 300 brands. In line with changing consumer tastes, many are considerably more upmarket than the burger and sandwich outlets of a decade ago, serving healthier, premium food. SSP even runs a Michelin-starred restaurant in Hong Kong airport, Hung’s Delicacies.
Even so, it still derives 40 per cent of its revenues from the UK, with 44 per cent coming from the Continent. The US and Canada account for about 10 per cent while Asia and the Middle East make up the rest. This is where much of the growth potential lies.
North America has traditionally been dominated by one large operator, but SSP has muscled in, moving in to prestigious airports such as JFK in New York. It also won contracts in Texas, Florida and Montreal in the first six months of this year.
In Asia, even though China is not growing as fast as it once was, passenger numbers are still rising by 6 to 8 per cent annually and the country plans to open 70 new airports over the next ten years. All those new travellers will need to be fed and watered, so hundreds of bars, cafes and restaurants will be built, many of which will be run by external operators. SSP has been investing in its Asian business and recently won a £60million contract to run eight new outlets at Beijing Capital International airport.
The Middle East offers plenty of room for growth, too, particularly the Gulf States, where air travel is increasing rapidly. Closer to home, the company won a seven-year contract at the newly-revamped Stansted Airport, including the first ever airport restaurant from celebrity chef James Martin, the James Martin Kitchen.
SSP’s financial year runs to September 30 – last Wednesday – and the results will be revealed in a few weeks’ time. Sales of about £1.8 billion are expected, in line with last year, after being hit by the strength of sterling against the euro and Scandinavian currencies. But profits should still show strong growth, rising about 25 per cent to £78million and a further 14 per cent to £89million in 2016. A dividend of 4.2p is expected this year, rising to 4.75 next.
Swann is keen to make the company more profitable by sourcing food and drink more efficiently, making sure staff are on site when needed and using consumer data to find out more about people’s preferences.
Midas verdict: SSP shares are 297½p and should deliver long-term rewards. Air travel is increasing and SSP is working hard to make sure it reaps the benefits. Buy.