The rise of Whitbread (LSE: WTB) brands such as Premier Inn and Costa Coffee has been impossible to avoid over the last decade, as has the success of J D Wetherspoon (LSE: JDW).
Over a similar period, snack bars and cafes at railway stations and airports have been transformed from generic venues to branded outlets like Starbucks and M&S Simply Food — a change that’s been led by one of this year’s most successful IPOs, SSP Group (LSE: SSPG), which operates many of these branded outlets in travel locations.
Unsurprisingly, shareholders in these companies have been doing pretty well:
| Â |
5yr share price gain |
5yr avg annual total return* |
|
Whitbread |
241% |
30.3% |
|
JD Wetherspoon |
77% |
14.0% |
|
SSP Group |
n/a |
n/a |
|
FTSE 100 |
22% |
8.2% |
*Total return is share price gain plus dividends.
Figures for SSP Group aren’t available, as the company only floated earlier this year, but it’s worth noting that SSP shares have risen by 30% since July, when they joined the market.
Of course, these strong performances mean that none of these companies looks especially cheap — so which is the best buy in today’s market?
|
2015/16 forecast |
Whitbread |
JD Wetherspoon |
SSP Group |
|
P/E |
20.3 |
14.5 |
21.5 |
|
Dividend yield |
1.8% |
1.6% |
1.6% |
|
PEG ratio (price to earnings growth) |
1.5 |
1.9 |
1.5 |
Source: Consensus forecasts
JD Wetherspoon looks quite reasonably priced, and although its yield is around half the FTSE average, it’s hard not to be impressed by the firm’s success at finding a pub business model that really works in the UK market.
Whitbread looks more expensive, but confirmed today it expects to meet full-year expectations, and reported sales growth of 13% during the third quarter, compared to the same period last year.
However, I do have some reservations: like-for-like growth was a more modest 6.0%, highlighting how Whitbread’s strong top-line growth is mainly being driven by expansion.
In my view, you have to question how much longer this rate of expansion can continue, but despite this risk, analysts remain bullish and expect earnings per share (eps) growth over around 30% this year and 13% next year.
It’s a similar story at SSP, where operating profits rose by 20.8% during the last year, and forecasts for the year ahead suggest eps growth of 14%, coupled with a 15% dividend increase.
SSP’s chief executive, Kate Swann, pioneered WH Smith’s expansion into the travel market and is highly regarded for her ability to cut costs. This could make Ms Swann an ideal appointment at SSP, as its operating margin is currently less than 5% — much lower than either Wetherspoon (8%) or Whitbread (18%).
Today’s best buy?
In my view, SSP may offer the best opportunity for growth investors: if Ms Swann can deliver the twin feat of profit margin expansion and international growth, SSP’s profits could rise more quickly than expected over the next couple of years.