On Thursday, Morgan Stanley adjusted its stance on SSP Group Plc (SSPG:LN) (OTC: SSPPF) stock, downgrading it from Overweight to Equalweight and reducing the price target to £2.40 from the previous £3.00. The reassessment comes amid lowered earnings per share (EPS) forecasts and concerns over a delayed margin recovery in key markets.
The firm cited a series of downgrades and a lack of near-term catalysts as reasons for the lowered confidence in the travel concessions operator. Despite the current share price being considered inexpensive with a seemingly attractive risk-reward balance, the analyst expressed caution due to the ongoing adjustments to earnings forecasts.
Morgan Stanley's revised EPS estimates for the fiscal years 2024, 2025, and 2026 reflect a decrease of 7%, 19%, and 22%, respectively. These changes are attributed to a slower than anticipated 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 the Rest of the World have surpassed levels seen in FY19 by 110-130%, the UK and European markets are lagging. The recovery in UK Rail has been sluggish, and contract renewals in Europe's air sector have had a dampening effect.
As a result, the anticipated margin improvements have been postponed, with the group not expected to match FY19 margins until FY26, leading to EBITDA downgrades of 1%, 5%, and 6% for the respective fiscal years.
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