National Express Group PLC – Remained EBITDA positive despite 80% fall in mileage and patronage.

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.

Investment Rationale – Speculative Buy at GBX 130.30
 

1. Remained EBITDA positive despite significant fall in passenger volume.

2. The trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) of the Company is significantly lower than the ‘Industrials’ industry median.

3. Encouraged by early sign of demand recovery with lockdown easing.
 

Half-Year Results (for the six months ended 30 June 2020)


(Source: Company Website)

As per the update released on 13 August 2020, the FY20 started well with strong trading in January and February; however, Covid-19 pandemic had an unprecedented impact on all businesses from March onwards. During H1 FY20, operational activities remained at suppressed levels during the period, and the revenue declined by 22.7% to £1.03 billion (H1 FY2019: £1.34 billion). However, with swift and decisive actions, it was able to achieve EBITDA of nearly £90 million in H1 FY20. The basic loss per share stood at 17.3 pence in H1 FY2020 (H1 FY2019: basic earnings per share of 13.1 pence). The free cash flow declined significantly to negative £193 million in H1 FY2020 (H1 FY2019: positive free cash flow of £95.6 million)

Financial Position: As of 30 June 2020, net debt stood at £1,340.3 million with net funds outflow for the period of £98.8 million. The gearing ratio increased to 3.8 times EBITDA (31 Dec 2019: 2.4x). Regarding the liquidity, the Company had available cash of £1.7 billion and £782 million of undrawn Revolving Credit Facilities.

One Year Share Price Chart


 1-Year Chart as of 26 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Risk Assessments

The reduced discretionary travel and high level of unemployment have significantly impacted the passenger volume. Social distancing rules can put pressure over margins and profitability further. Moreover, the prolonged state of lockdown can materially impact the Company’s liquidity.

Valuation Methodology



Conclusion

Given the level of uncertainties, the Company is unable to forecast the financial performance. Both Moody’s and Fitch have revised the rating outlook to negative from stable on the transport sector. However, with cost-cutting actions and ongoing government support, the Company shall continue to deliver positive EBITDA ad cash flow. While patronage fell 80% during lockdown, NEX still remained EBITDA positive and secured 50% of expected revenue. Furthermore, it has started witnessing early signs of demand with lockdown easing, and the Company remain firm and excited by the long-term opportunity.

Stock 52 week High and Low were GBX 485.00 and GBX 66.30, respectively. From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Over the past four years (FY15 – FY19), the company’s revenue surged from GBP 1,919.80 million in FY15 to GBP 2,744.40 million in FY19. Compounded annual growth rate (CAGR) stood at 9.34 percent.

Based on strong demand and business resilience as discussed above, we have given a “Speculative Buy” recommendation on National Express Group at the current market price of GBX 130.30 (as on 26 August 2020, before the market close at 2.44 PM GMT+1) with lower double-digit upside potential based 11.70 Price/ NTM Cash Flow (approx.) on FY20E Cash Flow Per Share (approx.).

James Fisher and Sons PLC – Reducing costs and optimising cash flows.

James Fisher and Sons PLC (LON: FSJ) is a FTSE 250 listed Company, which provides specialised engineering services and marine solutions to the oil & gas, marine and high assurance industries globally.

The provisional interim ex-dividend date is 1 October 2020.


Investment Rationale – Speculative Buy at GBX 1,116.00
 

1. Declared interim dividend after the resilient performance.

2. The trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow) of the Company is significantly lower than the ‘Freight & Logistics Service’ industry median.

3. Reduction in debt by £30 million.
 

Half-Year Results (for the six months ended 30 June 2020)


(Source: Company Website)

As per the update released on 25 August 2020, the Company reported a significant decline in top-line and bottom-line items of the income statement. Therefore, it has adopted swift action to reduce costs, protect liquidity, and optimise cash flow. Revenue declined by 10% in H1 FY20 (vs H1 FY19) while statutory profit before tax fell 59% against H1 FY19. The declining performance was influenced by the combination of a sharp decline in energy prices and Covid-19 disruption. Considering the challenging conditions, the overall financial performance was resilient, and hence, the Board declared an interim dividend of 8.0 pence per share.

Liquidity Position: As of 30 June 2020, the committed revolving credit facilities increased to £300 million (30 June 2019: £250 million). There is a reduction in debt by £29.9 million, as compared to the position of 31 December 2019. The ratio of net debt to EBITDA at the end of H1 FY20 was 2.5 times (2019: 2.3 times).

One Year Share Price Chart

 
1-Year Chart as of 26 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Risk Assessments

FSJ’s performance is exposed to various kinds of operational, strategic, and financial risk, such as delay in project delivery, nosedived oil prices, cyberattacks, fluctuation in interest rates and foreign currency. The energy demand is likely to remain low even in the second half of FY20.

Valuation Methodology

 

Conclusion

FSJ confronted the most demanding period it has ever faced during H1 FY20; however, it has responded swiftly to both longer-term implications for energy demand and unprecedented headwinds presented by Covid-19. The outlook for H2 FY20 is also uncertain, albeit the trading is expected to improve during the second half. Overall, the Company is well-diversified by end-market and geographical sector, which provides resilience to the business. Moreover, it has substantial liquidity and cost savings to deliver growth in the longer-term for shareholders.

Stock 52 week High and Low were GBX 2,190.00 and GBX 1,100.00, respectively. From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Over the past four years (FY15 – FY19), the company’s revenue surged from GBP 437.93 million in FY15 to GBP 617.10 million in FY19. Compounded annual growth rate (CAGR) stood at 8.95 percent.

Based on strong demand and business resilience as discussed above, we have given a “Speculative Buy” recommendation on James Fisher and Sons at the current market price of GBX 1,116.00 (as on 26 August 2020, before the market close at 1.04 PM GMT+1) with lower double-digit upside potential based 20.79x Price/ NTM Earnings (approx.) on FY20E Earnings Per Share (approx.).
 
 
*All forecasted figures and Industry/Peer Information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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