National Express Group Plc - Leading Transport Provider with Strong Business Model

National Express Group Plc (LON: NEX) is a Birmingham, United Kingdom-based transport service provider, listed on FTSE-250 index.

Board Changes
On 24^th June 2020, National Express Group announced that the CEO (Chief Executive Officer), Dean Finch has stepped down for his position and will take up the role of CEO at PSON (Persimmon Plc). He will leave the position at the end of the year or until the successor is appointed.

Update on Trading Performance (as on 15th May 2020)
NEX provided an update on the trading performance for the month of April 2020, with the revenue stood at approximately 50% in April 2020 as compared with the same period last year. In key markets, the Company made some positive developments as it moves out of lockdown. National Express had initiated start-up discussions for return to service with school districts and won the school bus contract in North America. In Canada region, the Group has witnessed 80% of students registered for immediate requirement school buses. For coach services, the Company has started selling tickets in the UK. NEX managed to generate positive EBITDA, which was slightly ahead of the expectations. In April 2020, National Express Group had a strong cash collection, which resulted in positive cash flow ahead of management’s anticipations.  The Company witnessed an improvement in the liquidity position, with undrawn committed facilities and a cash balance of about GBP 1.5 billion.

Share Price Performance

Daily Chart as of June 29^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

National Express Group Plc shares were closed at GBX 196.20 on 29^th June 2020. Stock 52 week High and Low were GBX 485.00and 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.

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; competition arises from direct price competition; inter-modal; and change in technology.

Conclusion
The Company witnessed another strong performance in the key summer period. In the month of April, the Group has shown positive EBITDA and further upgraded the liquidity position. North America business had demonstrated robust growth, while ALSA business and UK Coach division are well-positioned. Services and demand in Morocco and Spain are expected to increase following the relaxation of lockdown measures. To tackle the Coronavirus outbreak, the Group is in talks with the banking Group for short-term facilities and taking effective actions to reduce the operating costs.

Over the course of 3 years (FY16 - FY19), the Company’s revenue surged from GBP 2,103.7 million in FY16 to GBP 2,744.4 million in FY19. Compounded annual growth rate (CAGR) stood at 9.27 per cent.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 196.20 (as on 29^th June 2020) with single-digit upside potential based 9.50x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).

Go-Ahead Group Plc - Operating with Strong Track Record and Resilient Business Model

Go-Ahead Group Plc (LON: GOG) is a FTSE 250 listed public passenger transport Company for bus and rail services.

Trading Update for the year ending 27 June 2020 (as on 22^nd May 2020)
In this update, the Group affirmed that it had a resilient business model, with government support in all divisions and limited exposure to changes in passenger demand. 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. Go-Ahead Group has strong fundamentals, with approximately GBP 200 million of unutilised facilities and cash at the year-end, and up to GBP 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. Operating profit for the year to June 2020 will be in the range of £63-£75 million.

Share Price Performance
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Daily Chart as of June 29^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Go-Ahead Group Plc shares were closed at GBX 871.00 on 29^th June 2020. Stock 52 week High and Low were GBX 2,308.91and GBX 390.20, 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.

Valuation Methodology
 

Key Risks
The declining economic conditions potentially impact demand for discretionary travel, and changes in any government policy, funding regimes or the legal and regulatory framework may result in structural market changes or impact the Group’s operations in terms of reduced profitability, increased costs and/or a reduction in operational flexibility or efficiency. 

Conclusion
The Group has a strong balance sheet and good liquidity, with unutilised facilities and cash of around GBP 200 million at the end of FY20 and adjusted net debt expected to be in the region of GBP 980 million. The Company has no debt maturities ahead of 2024. With a high proportion of secured revenues, Go-Ahead has a healthy track record of delivery. 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 closing price of GBX 871.00 (as on 29^th June 2020), with lower double-digit upside potential based 13.20x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy” recommendation is valid for the current price as covered in the report as on 30^th June 2020.

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