National Express Group Plc

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.

The Company will announce full-year results on 10 March 2021.

Investment Highlights - National Express Group Plc – Avoid at GBX 285.04

• Due to the impact of covid-19, the Company faced significant risks which impacted the financial performance significantly.
• The Company has received a BBB investment grade rating from Fitch, while the outlook for the whole transport sector remained negative.
• In the last one year, the Company delivered a negative return of ~35.29% and delivered lower returns compared to the benchmark Index (FTSE-250 Index).
• From the technical standpoint, 14-day RSI is supporting downward movement (around 56 level), which means the stock price could decline in the short term.

Key Risks

• The reduced discretionary travel and high level of unemployment have significantly impacted the passenger volume.
• Social distancing rules can put pressure on margins and profitability further.

Trading Update (released on 12 November 2020)

• The Company witnessed an improvement in revenue performance in October 2020, with positive EBITDA.
• The Company retained liquidity and expected cash and undrawn committed facilities of around £1.5 billion as on 31 December 2020.
• The Company won contracts in Portugal and the UK, reflecting the Company’s reputation for operational excellence.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company witnessed an improvement in the trading environment in October 2020, while uncertainty remained. Due to imposed travel restriction and enforcement of social distancing protocols, the operational and financial performance impacted for the short-term period. The recovery pace remained slower due to lockdowns and increased infections. The Company expects normalised EBITDA for FY2020 to be in between £170 million to £190 million, reflecting greater clarity on the latest government lockdown policies and school start-up in North America. NEX has generated positive EBITDA and cash flow in October, which is expected to continue in remaining of 2020. With the increased number of covid-19 cases, the growth projects might delay or put on hold. The stock made a 52-week low and high of GBX 66.30 and GBX 453.40, respectively.

Based on the above rationale, we have given an “Avoid” recommendation on National Express Group Plc at the current price of GBX 285.04 (as on 12 February 2021, before the market close at 12:05 PM GMT), and with support from few catalysts needs to be evaluated at a later stage such as a recovery in the trading environment.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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