I reckon the release of first-quarter financials from SSP Group (LSE: SSPG) on Tuesday, 21 January, provides a great buying opportunity for both growth and dividend investors right now.
The FTSE 250 retailer, which operates catering outlets in hundreds of airports and train stations the world over, certainly impressed last time it updated the market in November. It reported that revenues rose 9% in the 12 months to September 2019, to £2.8bn, with like-for-like sales rising by a solid 1.9% thanks to growing passenger numbers in the air and on land.
Strong sales helped underlying profit before tax leap 10.2% to £203.2m, and in further news SSP said that trading in the new financial year had been “in line with expectations.” I’m expecting an even more upbeat release when those aforementioned financials come out, too, one that could send its share price hurtling northwards.
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Spreading out
Why am I so confident? Well SSP has turbocharged expansion to keep up with the steady rise in passenger numbers and to latch onto great opportunities in individual markets, too. Last year it opened a flurry of new units in major US airports like LaGuardia, Seattle and LAX; more outlets in air bases, train stations and motorway service areas across Europe; and expanded in airports in hot emerging regions like India.
And investors have more to look forward to in the near-term and beyond. Last year saw it enter another top growth market in Brazil, and the upcoming launches in Bahrain, Bermuda and Malaysia will see it eventually operate in almost 40 countries. Meanwhile, SSP won a large number of new contracts in some important markets across North America, mainland Europe, and in the UK as well.
I’m not just encouraged by SSP’s sunny revenues outlook as traveller numbers rise across the world and expansion plans continue, though. I also like the progress that the firm is making on improving margins and especially so in a time when cost inflation is becoming more problematic. The retail play saw underlying operating margin 30 basis points higher in financial 2019, to 7.9%.
A top dividend grower
With earnings having swelled by double-digit percentages during the past four fiscal years, SSP has consequently proved a hit with dividend chasers. Shareholder rewards have more than doubled in that time, culminating in the 11.6 per share reward of the financial 2019.
And City analysts expect another meaty rise in fiscal 2020, to 12.5p per share, supported by an expected 6% profits rise.
A 1.8% forward yield clearly isn’t much to get excited about, though the prospect of strong and sustained payout growth in the coming years still makes the retailer a top income buy today. SSP certainly has the sort of formidable cash generation to support additional, and excellent, growth – strength which saw it launch a £100m share buyback programme in the autumn.
On the negative side SSP is toppy on paper, dealing on a forward price-to-earnings (P/E) ratio of 21.8 times. But this wouldn’t discourage me from buying given its exiting growth plans and great record of recent annual profits expansion. I think it’s a top buy today.
