SSP Group stock downgraded by Morgan Stanley on weak margin outlook and EPS cut by Investing.com
On Thursday, Morgan Stanley adjusted its rating on SSP Group Plc (SSPG:LN) (OTC: SSPPF) stock, downgrading it from Overweight to Equalweight and reducing the price target to £2.40 from £3.00 previously. The reassessment comes amid lowered earnings per share (EPS) forecasts and concerns over delayed recovery of margins in key markets.
The company cited a series of downgrades and a lack of immediate incentives as reasons for lowering confidence in the travel permit operator. Despite the current share price being considered cheap with an attractive risk-reward balance, the analyst expressed caution due to the ongoing changes in earnings forecasts.
Morgan Stanley's revised EPS estimates for fiscal years 2024, 2025, and 2026 show declines of 7%, 19%, and 22%, respectively. These changes are due to slower than expected margin recovery in the UK and Continental Europe, increased depreciation charges, and rising interest costs. However, revenue forecasts remain unchanged, with expected growth of 14%, 11%, and 6% over the same periods.
The report also notes that while SSP's EBITDA margins in North America and Worldwide have exceeded the levels seen in FY19 by 110-130%, the UK and European markets are still lagging. UK Rail's recovery has been sluggish, and contract renewals in the European air sector have had a negative impact.
As a result, expected margin improvements have been delayed, the group is not expected to match FY19 margins until FY26, resulting in EBITDA declines of 1%, 5%, and 6% in the respective fiscal years.
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