SSP Group Shares Underappreciate £1.2bn India JV Valuation, Says Shore Capital

SSP Group (LON: SSPG) shares do not yet reflect the full value of its Indian joint venture, Travel Food Services (TFS), according to Shore Capital, following confirmation of the TFS initial public offering.

TFS has filed its Red Herring Prospectus with Indian regulators, with trading on the Indian stock exchanges expected to begin on July 14. 

The IPO price band has been set between INR1,045 and INR1,100 per share, implying a valuation of approximately INR138 and INR145 billion, or  £1.2 billion for TFS, towards the upper end of Shore Capital’s expectations.

SSP holds a 49% stake in TFS, rising to 50.01% after the group acquires an additional 1.01% for £12.5 million. 

Based on the IPO terms, SSP’s interest in TFS alone equates to 43% of its current market capitalisation, despite contributing just 15% to group earnings.

Shore Capital sees the implied 40x earnings valuation for TFS as “endorsement of the generational opportunity India offers and TFS’ market-leading position,” yet notes SSP shares continue to trade at a forward P/E of under 15x. 

On a look-through basis, this is said to imply a sub-10x valuation for the rest of SSP’s business.

TFS is expected to be a long-term value driver for SSP, though Shore Capital suggests a potential stake sale “further down the line” is possible if SSP’s share price fails to reflect the Indian unit’s value.