JP Morgan cuts SSP target price on slower recovery

JP Morgan cut its earnings estimates and price target for SSP but kept its 'overweight' rating on the owner of the Upper Crust baguette chain and other transport-led food outlets.

Consensus estimates for SSP do not yet reflect the slower-than-expected revival of air travel, JP Morgan said. Airlines and consultants forecast air travel returning to 80-90% of pre-Covid levels by 2024/25, the bank said.

JP Morgan predicted SSP's revenue would fall 70% in 2021 from 2019, a steeper drop than the 45% the bank had predicted before. The bank also cut its revenue assumptions by 11% for 2022 and 6% for 2023. Earnings will drop to a £268m loss in 2021, much worse than the £96m loss the bank had predicted previously.

Results will improve after 2021 but more slowly than expected with SSP posting £170m of earnings before interest and tax in 2023 compared with a £185m profit JP Morgan had forecast for that year.

The bank kept its 'overweight' rating on SSP shares but cut its price target to 350p from 400p based on the pace of recovery and SSP's £475m rights issue, which it completed in April to bolster its finances against a slower recovery for transport markets.

Our estimates come down meaningfully in FY21/22 as a result, keeping the overall path to recovery broadly unchanged (both revenue and margins back to pre-Covid level by FY25)," JP Morgan analyst Estelle Weingrod wrote in a note to clients. "We see SSP as well positioned into the recovery post rights issue, leaving it in a much better place to face current headwinds, regardless of the speed of re-opening."