National Express Group PLC - Expecting Positive Cash Flow, with Some Growth Trends

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

On 30^th July 2020, the Company will release its half-year results.

Trading Update (as on 15^th May 2020)
NEX provided an update on the trading performance for the month of April 2020, with the revenue stood at approximately 50 per cent in April 2020 as compared with the same period last year. In its 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 shown 80 per cent 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 its 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 approximately undrawn committed facilities and a cash balance of GBP 1.5 billion.

Share Price Performance

1-Year Chart as at June-05-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 5^th June 2020, National Express Group PLC’s shares closed at GBX 249.40 and were up by 4.79 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 485.00/GBX 66.30.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology
 

Growth Trajectory Holds Upside Potential
The Company is focused on accelerating its cost savings and restructuring plan to offset the impact due to the uncertain environment.

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 its liquidity position. North America business had shown 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 its operating costs.

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 249.40 (as on 5^th June 2020), with lower double-digit upside potential based 1.16x NTM EV/Sales (approx.) on FY20E sales (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.

On 10th September 2020, the Company will release its full-year results.

Trading Update (as on 22^nd May 2020)
The Company provided a trading update for the year ending 27 June 2020. The Group 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 its 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

1-Year Chart as at June-05-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 5^th June 2020, Go-Ahead Group PLC’s shares closed at GBX 1,185.00 and were up by 2.24 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 2,308.91/GBX 390.20.

From the technical standpoint, its shares were trading well above its short-term support level of 50-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology
 

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

Conclusion
The Group has a strong balance sheet and good liquidity, with unutilised facilities and cash of around GBP 200 million at the year-end 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 1,185 (as on 5^th June 2020), with lower double-digit upside potential based 17x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Stagecoach Group PLC – Operating with Strong Liquidity Position

FTSE 250 listed Stagecoach Group PLC (LON: SGC) is a Perth, United Kingdom-headquartered leading multi-modal UK public transport company.

The Group will announce its preliminary results for the year ended 2nd May 2020 in late July 2020.

Trading Update (as on 28^th May 2020)
The Company provided a trading update, with an increase in the available liquidity and an increase in available cash and undrawn, committed bank facilities of more than GBP 800 million. On 2^nd May 2020, the Company estimates net debt between GBP 350 million and GBP 360 million. Currently, it has available liquidity of GBP 814 million, including GBP 300 million from the UK Government’s COVID-19 corporate financing scheme. Led by the robust liquidity position, the Group has surged its planned 2020/21 capital expenditure by around GBP 14 million, mainly to acquire additional vehicles available for delivery in the short-term. For the year ended 2 May 2020, the Company estimated that the adjusted earnings per share would be in the range of 12.5-14.0 pence.

Share Price Performance

1-Year Chart as at June-05-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 5^th June 2020, Stagecoach Group PLC’s shares closed at GBX 77.00 and were up by 4.34 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 166.80/GBX 50.04.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day and 50-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology 


Conclusion
The Group said that the UK Department confirmed to restart normal public transport services. As part of this, the UK Department has made GBP 254 million available for England bus services, which will increase the frequency and capacity of services. Meanwhile, available liquidity has augmented significantly due to new borrowing capacity and positive cash flow. The Group said it is difficult to predict performance for FY21, due to on-going uncertainty of the COVID-19 crisis. While public transport can play a vital role in a cleaner, greener and more resilient economy and society, tackling climate change with robust government action to reduce car use. However, the Company expects to generate positive EBITDA in the short term and avoid significant operating losses.

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 77.00 (as on 5^th June 2020), with lower double-digit upside potential based 6.70x 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 8^th June 2020.

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