Tuck in to SSP

While few people will have heard of SSP itself, its brands are instantly recognisable and omnipresent at travel hubs. It runs the M&S Simply Food sites in many locations across the UK, for example, as well as specialist travel-sector brands such as Upper Crust and Caffè Ritazza. It also boasts global brands, such as Starbucks and Burger King, and caters for local tastes with outlets such as Boccone in Toronto or Hung's Delicacies in Hong Kong.

This mix of brands gives SSP the ability to operate multiple outlets in a single travel hub, which in turn allows it to generate economies of scale. The brand mix also adds a special flavour to SSP's expansion plans and enhances its ability to win new contracts and increase its market share at the expense of smaller operators - it won't just be foisting mega brands on to travellers but will be providing them with something authentic to the region, too. A good example is its recently won contract to operate 21 outlets at Don Mueang International Airport in Bangkok. Because roughly three-quarters of the passengers are locals, management will include a range of Thailand's best-known food-to-go brands as well as other Asian favourites, given that the majority of the airport's international passengers are from Southeast Asia and China.

SSP's ability to put the right brands in the right places has been a key reason for its success in growing like-for-like sales. Importantly, coupled with a general long-term trend towards increased air and rail passenger numbers, this makes analysts believe the group will continue to push like-for-likes ahead. With this comes the prospects of margin improvements given the largely fixed nature of many of the company's overheads.

Margin growth should also come from the group's ability to exploit its scale. Winning new concessions in travel hubs where it does not yet have a large presence is one way it is doing this. The company has also been working on improving its sourcing and cutting costs. Chief financial officer Jonathan Davies told Investors Chronicle last year that the business was slashing the number of suppliers it uses, simplifying the ranges and recipes available at some of its brands and working to reduce waste. In the 2015 financial year, Mr Davies said these measures augmented gross margins by 30 basis points.

And there should be further to go given management's claims that continued progress would help it better leverage its international scale. An example of this was its move to sign deals with a few international suppliers for crockery, glassware, bakery, packaging and sugar sachets.

All in all, broker Numis reckons the group can raise its operating margins by about 45 basis point a year based on it achieving like-for-like growth of 3 per cent. So far, it has had little problem achieving such growth, reporting 2015 like-for-likes 3.7 per cent ahead of the previous year and like-for-like growth of 4.3 per cent in the first quarter of the current year. Contract wins are also contributing to rising sales and were responsible for 1.9 per cent growth in the first quarter.

The combination of rising sales and rising operating margins, along with the financial gearing provided by net debt of £320m, means earnings are forecast to show good and steady growth over the coming years (see table). This should help underpin SSP's growing reputation as a 'quality' play and allow it to continue the impressive improvement seen in return on capital employed (ROCE) over recent years - consensus broker forecasts have ROCE reaching 12.9 per cent this year from 5.3 per cent five years ago. SSP's profile with investors could also be raised by the forthcoming listing in the US of airport concessions caterer OTG.

SSP'se shares have come off due to recent wider economic concerns and it is also exposed to global events; the recent attacks in Paris and Egypt hit sales as passenger numbers fell.