(ShareCast News) - Travel operator Tui was downgraded by JPMorgan Cazenove after its good share price run last year and what is expected to be a "less supportive" 2018, while SSP was upgraded as its shares offer an "attractive entry point".
In a wider look at European leisure stocks, the sector is expected to do well, delivering 10% growth in earnings per share this year, though this is only marginally better than the wider European markets at 9%, which calls for investors to be increasingly selective.
Cazenove's three key themes for 2018 are: catering stocks now differentiating mostly on top-line, which resulted in the upgrade of food franchise operator SSP to 'overweight' and a price target whooshing up to 765p from 520p, with a reiteration of the same rating for Compass.
SSP, whose share had fallen 9% so far in 2018, was the beneficiary of a "more aggressive" approach, with analysts saying their former forecasts for flat margins after 2018 were too low, with recent strong delivery, supportive guidance for the current year and recent management comments "suggest that there is instead potential for continued efficiencies".
New estimates that SSP's margin last year of 6.8% could have reached 7.4% if adjusted for investments in infrastructure and start -up costs, Cazenove's new forecasts for earnings per share for the next three years of 22.09, 23.95p and 24.86p.
Second, is that hotels are "unlikely to surprise positively, especially in the US", which sees Intercontinental Hotels remain at 'underweight', with the third theme being that travel and gaming newsflow is likely to be less supportive throughout the first half, which sees the downgrade of TUI and Ladbrokes Coral to 'neutral'.
Both these stocks had a strong run in 2017, supported by positive news on asset disposals, source markets resilience, destination for TUI, merger synergies, regulation and corporate action for Ladbrokes.
"We expect H1 to be less supportive in that regards and would stay away for the time being despite still attractive valuations across tour operators and gaming."
23 Nov 17 Morgan Stanley Underweight 639.25 480.00 530.00 Retains
23 Nov 17 Barclays Capital Overweight 639.25 - 650.00 Reiterates
22 Nov 17 Numis Add 639.25 - 670.00 Retains
22 Nov 17 Shore Capital Buy 639.25 - - Reiterates
22 Nov 17 Liberum Capital Buy 639.25 600.00 600.00 Reiterates
More cash returns to come at SSP, says Shore Capital
Upper Crust owner SSP (SSPG) has reported better-than-expected full-year results and dividends, leading Shore Capital to predict more shareholder returns.
Analyst Greg Johnson retained his buy recommendation on the shares, which jumped 6.6% to 647p on the news.
The group reported an underlying operating profit increase of 34% to £162.9 million, which was £5 million better than forecast. It was driven by strong revenue and improvement in margins.
Management noted that the current year had started well with an encouraging pipeline of new contracts.
The group has announced a step in the payout ratio from 35% to 40%, resulting in a sharp increase in its full-year dividend per share to 8.1p against our forecast 6.8p and a £100 million special dividend and share consolidation, said Johnson.
With the debt/earnings likely to remain below the target range we would expect further cash returns going forward.
He added that the better-than-expected results and the special dividends meant he had revised up his profit before tax forecasts for 2018 to £174 million.
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