SSP holds outlook as LFL sales grow 3%; Cautious on Iran war impact

(Sharecast News) - Travel food outlet operator SSP Group posted a 3% rise in like for like sales in the first six weeks of the second half, despite a slump in passenger traffic in Asia and the Middle East due to the Iran war. The Upper Crust owner said the rise compared to 5% in the first two quarters of the fiscal year, adding that it still expected earnings to be within consensus estimates.

"However, if the operating environment were to deteriorate e.g. due to a resumption of the conflict in the Middle East, a material further decline in the availability of aviation fuel, or a marked softening of consumer travel sentiment, it would inevitably impact our full year performance," the company said on Tuesday.

Underlying operating profit for the six months to March 31 rose 9% to £50m. SSP expects full-year earnings per share to remain within the market consensus range of 13.6p - 14.8p.

Sales in the Asia-Pacific, Eastern Europe and Middle East - excluding the Gulf - fell to zero from 14% growth from April 1 to May 10 due to a drop in connecting flights and lower local traffic.

Gulf operations were running on average at 60% of usual capacity, although SSP noted that sales in the region were only 2% of the group's total.

"Visibility to the resolution of this conflict continues to be limited and we are monitoring developments closely," SSP said.

Passenger numbers in the UK, North America and Continental Europe - around 80% of group sales - remained largely unaffected by the war to date.

"Having barely repaired the damage from the pandemic, SSP would have been hoping for a bit longer without more major disruption. Today's first-half results suggest it is holding up reasonably well, but there are hints of potential trouble to come," said AJ Bell investment director Russ Mould.

"Operating food outlets in travel hubs is, in theory, a vibrant place for business because of the captive audience - something which allows for robust pricing."

"However, the solid like-for-like sales growth seen by SSP in the first half of the year has slowed more recently as the impact of the Iran conflict begins to filter through. For now, this seems limited to the Middle East region but as costs and disruption builds this could extend further."

"Management have signalled some confidence in the outlook by raising the dividend and sticking with its share buyback. One legacy of Covid is the company has a hefty pile of borrowings and leverage was a smidge above the targeted level, which may create some nervousness."

Reporting by Frank Prenesti for Sharecast.com

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