This FTSE 250 retailer has a strong position in a niche market

SSP Group‘s (LSE:SSPG) a name that might not mean much to a lot of investors. But I think the FTSE 250 company has a lot to like from a long-term investment perspective.

The company runs food and beverage outlets like Upper Crust, Caffe Ritzza, and Millie’s Cookies. That doesn’t sound like much of an opportunity, but a closer look reveals something more interesting.

Travel

The problem with retail operations is there’s too much competition on the high street. But SSP doesn’t operate on the high street – it focuses on travel locations such as train stations and airports. Competition here’s limited and – as anyone who’s ever tried to buy a sandwich in one of these places knows – prices are higher as a result. And that makes the equation far more attractive.

This comes with some unique and specific challenges. Running a food outlet in an airport means working around complex security and staffing issues and operating at unusual opening times.

SSP’s expertise in this area however, gives it unique opportunities. As well as its own brands, the FTSE 250 firm runs airport franchises for the likes Starbucks – and does so on preferential terms.

For Starbucks, an airport is a very attractive venue to have a presence. But the procedural difficulties associated with operating in this type of environment make it prohibitively difficult.

This is where SSP’s advantage comes in. Its specialist knowledge as the largest provider of food and beverage outlets in these venues makes it an ideal partner in this kind of enterprise.

Growth and value

SSP reckons it can achieve annual revenue growth of between 5% and 7%. This is set to be driven by higher passenger footfall and the opening of new outlets and venues.

This isn’t guaranteed though, and the possibility of passenger numbers falling during a recession is a genuine risk. That’s why UBS currently has a Sell rating on the stock.

On an IFRS basis, the company’s currently unprofitable. That looks alarming, but it’s due to the firm writing down the value of some of its assets in Italy and overhauling its IT systems.

These are likely to be one-off issues and analyst expectations are for earnings per share to reach 16p by September 2027. That implies a price-to-earnings (P/E) ratio of 11.

The share price is actually lower than it was five years ago – when over half of SSP’s outlets were closed due to Covid-19. That’s clearly not the case now, but the firm’s balance sheet is riskier.

Elevated debt levels are always something to keep an eye on. But SSP does have some important competitive strengths that make it an attractive stock for investors to consider.

Foolish reflections

While investors are fascinated with artificial intelligence, SSP seems to fly under the radar. But great investments don’t have to be exciting and there’s a lot to be said for the FTSE 250 company.

Retail’s a tough industry, but it operates in a corner of the market that’s protected from a lot of the usual challenges. And it’s not hard to see what sets the firm apart from its competitors.

On that basis, I think the stock looks interesting. It’s definitely worth a look for investors who might be considering shares in a series of otherwise uninspiring retailers.

The post This FTSE 250 retailer has a strong position in a niche market appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended SSP Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.