Markets continue to rally on US stimulus and SSP goes cap in hand to investors

“After the big surge yesterday there was a steadier feel to this morning’s rally for the FTSE 100 and other European markets. That may be a good thing,” says Russ Mould, Investment Director at AJ Bell.

“In more settled times gains of more than 1% for an index are considered fairly significant. The sort of advances we saw yesterday, with some major markets rising by double digits, while welcome on one level, are also an indication of significant volatility and nervy investors.

“For there to be a sustainable recovery in equities these sorts of wild swings need to settle down. Effectively we need the markets to be more of a tortoise than a hare.

“In the short-term, and after the massive stimulus package agreed in the US overnight, it seems there is little more governments and central banks can do to bolster sentiment, although signs of the co-ordinated response promised by G7 countries might help.

“What we really need to see are signals that the containment measures introduced by many countries are proving effective at stalling the spread of the coronavirus and evidence that China’s exit strategy from its own lockdown is working.

“This could help light the path to a way out of the current economic limbo.”

SSP

“Having been one of the biggest stock market success stories in the past five years, transport hub food and drink seller SSP is now going cap in hand to shareholders and prospective investors.

“Plans to increase the number of shares in issue by nearly a fifth says two things. Firstly it shows that SSP is desperate for cash to survive the coming months, which is understandable given it operates out of airports and train stations which are now likely to resemble ghost towns, so there is little cash coming into the business.

“Management would only go down the path of raising equity following a big share price crash if they had already exhausted all the easy avenues for borrowing more money. You’ll notice a new debt refinancing agreement announced today is conditional on raising new equity.

“Secondly this share placing might be viewed as an once-in-a-lifetime opportunity for investors to hoover up stock at a massive bargain. SSP joined the stock market at 210p in 2014 and tripled in price over the following three years. It then hovered in the 650p to 750p trading range until January 2020. The coronavirus crisis dragged the stock down to 225p, effectively wiping out nearly all of the gains since its IPO.

“Investors are now being given a chance to buy almost at the starting price again, hence the share placing is likely to be filled very quickly and potentially only at a very small discount to the market price.

“Anyone taking a long term view might be comfortable buying now, despite a near-term substantial hit to earnings. SSP has a strong position in transport locations by running its own casual dining outlets and many third party ones under franchise agreements. It would be one of the first companies to benefit once UK and overseas travel activity resumes.”

These articles are for information purposes only and are not a personal recommendation or advice.