Trainline PLC

Trainline PLC (LON: TRN) is an FTSE 250 listed platform that sells rail and coach tickets to millions of travellers worldwide.

Upcoming Event: Trainline expects to publish its comprehensive H1 FY22 results on 3 November 2021.

Investment Rationale – SPECULATIVE BUY at GBX 322.60

• Economic Revival: British economy has regained momentum in October 2021 despite inflationary woes and mixed consumer confidence. Moreover, the progressive vaccine rollouts and supportive travel guidelines shall support the Trainline’s business prospects.
• Favorable Trends: TRN sees a considerable structural trends for its wider industry, including growth in rail capacity, the liberalization of domestic rail markets across Europe, and increased competition among carriers.
• Financial Outlook: TRN expects to report adjusted EBITDA in the range of £13-15 million in H1 FY22. It also expects to return to profitability as rail passengers return to online and digital tickets.
• Technical Indicator: From a technical standpoint, the stock price is hovering around the lower Bollinger Band, indicating an upside potential in the stock price.

Risk Assessments

• Pandemic Led Disruption: The resurgence in Covid-19 cases across the globe can dampen the economic recovery and keep the travel market disrupted, while there is a likelihood of increase in operating costs with inflationary market conditions.
• Travel Restrictions: Visa restriction is a big constraint for the industry, while the temporary closure of hotels can also restrict travel demand.

Trading Statement (for six months ended 31 August 2021, as on 14 September 2021)

 (Source: Company Website)

• Operational Recovery: During Q2 FY22, TRN’s net ticket sales recovered to 71% of same period in FY20, reflecting a highest level since the Covid-19 pandemic.
• Improved Activity Level: The UK customers recovered 95% in Q2 FY22 against the pre-Covid-19 level in Q2 FY20.
• Stronger Financial Position: At the end of August 2021, net debt was reduced to £169 million from £241 million at the end of February 2021. It reflected the impact of solid working capital inflow with strong recovery in net ticket sales.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Per Share Approach (FY22) (Illustrative) 

Conclusion 

Given the robust recovery in rail passengers return and digital ticketing, Trainline was encouraged by the travel demand in all markets across Europe. Therefore, the Company appeared optimistic regarding long-term demand outlook, especially on high-speed routes, with growing awareness of the environmental benefits of rail travelling. The stock made a 52-week High and Low of GBX 536.50 and GBX 250.26, respectively.

Based on the revenue growth, solid growth in customer base, expected profit before tax, long-term market opportunity, and favourable valuation conducted above, we have given a “Speculative Buy” stance on Trainline PLC at the closing market price of GBX 322.60 (as on 28 October 2021), with lower double-digit upside potential based 19.26x Price/NTM Cash Flow (approx.) on FY22E Cash Flow Per Share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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