Morgan Stanley on Thursday adjusted its stance on SSP Group Plc (SSPG:LN) (OTC:SSPPF) shares, downgrading them to Equalweight from Overweight and cutting the target price to £2.40 from £3.00 previously. The reassessment comes amid lowered earnings per share (EPS) forecasts and concerns about a delayed margin recovery in key markets.
The firm cited a series of rating downgrades and a lack of near-term catalysts as reasons for lower confidence in the travel concession operator. Even though the current share price is considered cheap with a seemingly attractive risk-reward balance, the analyst expressed caution due to ongoing adjustments in earnings forecasts.
Morgan Stanley’s revised earnings per share estimates for fiscal years 2024, 2025 and 2026 reflect declines of 7%, 19% and 22%, respectively. These changes are attributed to a slower-than-anticipated margin recovery in the UK and continental Europe, higher impairment charges and higher interest costs. However, revenue guidance remains 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 the rest of the world have exceeded levels seen in FY19 by 110-130%, the UK and European markets are lagging. UK Rail’s recovery has been slow and contract renewals in Europe’s air sector have had a dampening effect.
As a result, the planned margin improvements have been postponed and the group is not expected to match fiscal 2019 margins until fiscal 2026, leading to EBITDA downgrades of 1%, 5% and 6% for the respective fiscal years.
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