Broker tips: SSP, Britvic, Antofagasta

Jefferies has upgraded SSP Group to a 'buy' rating based on the food and drink concession operator's "sizzling solid potential" from structural changes in the US and UK.

The investment bank, which upped its target price to 450p, carried out some sizeable consumer research that found a willingness to pay a premium at airports and stations, which was a positive for SSP as that is where it operates Burger King, Starbucks, KFC, Marks & Spencer and YO!Sushi franchises.

Falling average 'dwell times' in UK rail are expected to benefit SSP, which operates at least half of the concessions in the country's five busiest stations, as "when in a rush and consumers have a choice, 53% are more likely to pick a brand of restaurant or food/drink retailer that they are familiar with".

In the States, the opportunity is in airports, where change is afoot due to local authorities' dissatisfaction with the current level of service.

Currently Autogrill is number-one in North American air, with around eight times more revenue than SSP, in part due to the legacy monopolistic system in place at US airports.

"We estimate circa 10% of revenue is renewed each year and, as it pushes its proven localised and 400+ brand model, SSP has more to gain in our estimated £5.5bn US market that also sees a c30% blue sky if customer penetration increases."

Along with product optimisation that could lift gross margins above 70% in the medium term, analysts calculate almost 8% compound annual growth in revenue between 2016 and 2019 and reckon SSP trades at discounts to peers with its forecast p/e ratio of 21.5 for 2017 falling to 19.3 for 2018.

Britvic’s shares fell on Monday after Numis cut its rating to ‘add’ from ‘buy’ and reiterated a target price of 697p ahead of the soft drink maker’s first quarter update.

Numis said the company’s first quarter trading update on 31 January is likely to reveal sales were boosted by an easy comparative in the same period the previous year and favourable foreign exchange movements.

“The update may therefore be a slight plus for sentiment, although there could also be a reminder of the need to pass on higher input costs of £25-30m this fiscal year at the Great Britain (GB) operations,” Numis said.

Numis said the Carbonates business is likely to be the “star performer” as Pepsi makes further market share gains and benefits from last July's business win with Subway.

GB Stills is expected to be the weakest major division, Numis added, saying it will take time to resolve the factors that dogged its performance in the 2016 full year results. Revenues at the stills business fell 7% in 2016 as the removal of the added sugar range of Robinsons in 2015 resulted in a decline in sales as fewer consumers switched to the new formulation than originally anticipated.

Among the group’s smaller operations, Numis believes Britvic’s Brazilian squash manufacturer Ebba could deliver a “spectacular sales advance off a modest base due to the follow-through effects of last fiscal year’s pricing actions, moves to upgrade the performance of the business, the launch of Fruit Shoot Maguary in Sao Paulo and sterling's marked weakness (the Real has even appreciated versus the dollar first quarter on first quarter)”.

Antofagasta was on the front foot on Monday after Citigroup upgraded the miner to ‘buy’ from ‘neutral’ at a target price of 807p.

Citi said Antofagasta is set to benefit from lower taxes as it will not incur withholding tax on dividend distribution from Chile through to the end of the decade. The bank estimates the net impact of an 8% lower effective tax rate, implying a 10-15% upgrade to consensus forecasts.

Citi also expects improvement in free cash flow generation to end of the decade.

“What has changed? — We believe that emergence of corporate level funding (about $500m) is a welcome sign and should lead to efficient tax planning,” the bank said.

“Historical project funding appears more of conservative stance to limit any execution risk to project/operation, however future expansions appear in reasonably well knows areas to the company and incremental corporate funding can clearly benefit earnings and cash-flows.”