National Express Group Plc – April Earnings were Boosted by Strong Cash Collections

FTSE 250-listed National Express Group Plc (LON: NEX) is a Birmingham, United Kingdom-based transport service provider, which operates in the UK, North Africa, the Middle East, Continental Europe, and North America.

On 30 July 2020, the Company will release the half-year results for FY20.

Trading Update (as on 15 May 2020)
NEX provided an update on the trading performance for the month of April 2020, and the revenue stood at approximately 50% in April 2020 as compared with the same period last year. In the key markets, the Company made some positive developments as it moves out of lockdown. National Express had initiated start-up discussions for a return to service with school districts and won the school bus contract in North America. Meanwhile, the Company witnessed immediate requirement for school buses in Canada. For coach services, the Company had started selling tickets in the UK. NEX managed to generate positive EBITDA, which was slightly ahead of the expectations. Regarding the liquidity, the Company had approximately £1.5 billion in cash balance and undrawn committed facilities.

Share Price Performance
 
1-Year Chart as at July-07-2020, before the market close (Source: Refinitiv, Thomson Reuters)

National Express Group Plc’s shares were trading at GBX 179.73 on 7 July 2020 (before the market close at 8:22 AM GMT+1), up by 0.18% against the last day closing price. Stock 52 week High and Low were GBX 485.00 and GBX 66.30, respectively.

From the technical standpoint, 90-day RSI (Relative Strength Index) is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology 
 


Key Risks
The declining economic conditions can potentially impact the demand for discretionary travel. Moreover, the changes in any government policy, funding regimes or regulatory framework may result in structural market changes, which imposes risk to operational efficiency as well.

Conclusion
The Company is focused on accelerating the cost savings and restructuring plan to offset the impact of the uncertain environment. The Group witnessed another strong performance in the key summer period. In the month of April, NEX has shown positive EBITDA and further upgraded the liquidity position. North America business had shown robust growth, while ALSA business and UK Coach division are well-positioned. The services and demand in Morocco and Spain are expected to increase, following the relaxation of lockdown measures. The Group will continue to emphasize profit growth in the coming years and operational excellence to maximize shareholder returns.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current market price of GBX 179.73 (as on 7^th July 2020, before the market close at 8:22 AM GMT+1) with low double-digit upside potential based on 9.00x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

Go-Ahead Group Plc - Operating with Strong Fundamentals

FTSE 250-listed Go-Ahead Group Plc (LON: GOG) is the public passenger transport Company for bus and rail services. The Company’s areas of operation are divided into three segments, i.e. regional bus, London bus and rail.

On 10 September 2020, the Group will release the full-year results for FY20.

Trading Update (for the year ending 27 June 2020, as on 22 May 2020)
The Group affirmed that it had a resilient business model, with government support in all divisions and limited exposure to changes in passenger demand. Operating profit for the year to June 2020 will be in the range of £63-£75 million.
Go-Ahead Group has strong fundamentals, with approximately £200 million of unutilised facilities and cash at the year-end, and up to £300 million of additional financing (through the COVID Corporate Financing Facility). Adjusted net debt to EBITDA is projected to stay within the target range at the year-end.

London & International bus performance was healthy through contracts in Ireland, London, and Singapore. While in the UK rail franchises, it has delivered a resilient financial performance offset by weaker than anticipated German rail operation.

Share Price Performance

1-Year Chart as at July-07-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Go-Ahead Group Plc’s shares were trading at GBX 762.78 on 7 July 2020 (before the market close at 9:17 AM GMT+1), down by 1.70% against the last day closing price. Stock 52 week High and Low were GBX 2,308.91 and GBX 390.20, respectively.

From the technical standpoint, 90-day RSI (Relative Strength Index) is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology


Key Risks
The Company’s performance is subject to external factors, such as the emerging risk of infectious diseases, political and economic disruption; pricing pressure from excessing competition; and change in technology. Moreover, the uncertain crisis of Covid-19 would further affect guidance.

Conclusion
In Regional bus, the Group expects operating profit for FY20 to be in the range of £17 million to £21 million. For the full year ending 27 June 2020, the Company’s operating profit for the London & International bus division will be between £46 million and £50 million. In the rail division, the Company anticipate operating profit for the full year ending 27 June 2020 up to £4 million, with the loss in German rail offsetting profit from the UK rail business.

The Group has a strong balance sheet and decent liquidity position, with unutilised facilities and cash of around £200 million at the end of FY20 and adjusted net debt expected to be around £980 million. The Company has no debt maturities ahead of 2024. Overall, the Company is on-track to protect the business for the long term.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current market price of GBX 745.00 (as on 7 July 2020, before the market close at 1:50 PM GMT+1), with lower double-digit upside potential based 12x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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