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 25 February 2021.

Investment Highlights - National Express Group Plc – Sell at GBX 224.60

• Due to the impact of covid-19, the Company faced significant risks which impacted the financial performance significantly.
• In the last one year, the Company delivered a negative return of ~ 51.16% and delivered significantly lower returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, EV/EBITDA, Price/Earnings and Price/Cash Flow multiples of the National Express Group Plc are currently higher as compared to the corresponding multiples of the Passenger Transportation Services industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 60 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 over margins and profitability further.

Trading Update (released on 24 September 2020)

• The Company traded above the previous guided base case while managing customer relationships, service requirements and contract details.
• The Company delivered positive EBITDA and cash flow, reflecting tight cost control.
• National Express Group win new contracts for the period, indicating appeal for service standards.
• The Company’s underlying liquidity position remained robust and stood in line with H1 position.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company witnessed an improvement in the trading environment and traded slightly above previous guided base case, 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. NEX demonstrated tight cost control to generate positive EBITDA and cash flow and won new contracts. 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 485.00, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for National Express Group Plc at the current price of GBX 224.60 (as on 10 November 2020, before the market close at 9:45 AM GMT) based on 29.13x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.). Clients having high risk appetite can keep a close watch on the stock from a long term perspective and take an informed decision as appropriate.

James Fisher and Sons Plc

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

Investment Highlights - James Fisher and Sons Plc – Sell at GBX 827.32

• The trading environment, in which the Company operates, continue to remain challenging in Q3 FY2020 and did not see any improvement or seasonal uplift.
• In the last one year, the Company delivered a negative return of ~ 59.47% and delivered significantly lower returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, Price/Earnings and Price/Cash Flow multiples of the James Fisher and Sons Plc are currently higher as compared to the corresponding multiples of the Freight & Logistics Services industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is supporting downward movement (around 58 level), which means the stock price could decline in the short term.

Key Risks

• The Company’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 the financial year 2020.

Trading Update for Q3 FY2020 (30 September 2020) (released on 6 November 2020)

• In the Q3 FY2020, the Company did not see any improvement in the trading condition and revenue for 9 months period declined by 17%.
• The revenue from Marine Support remained impacted, due to covid-19 related restrictions in the Middle East, southern Africa and the UK.
• The Company’s net borrowings stood in line with expectations, with RCF (revolving credit facilities) of around £96 million.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company’s operations were significantly impacted by the outbreak of covid-19, and continue to remain the same, as it does not see any improvement in the trading environment. The revenue for 9 months period was significantly down, while the Company expects full-year underlying operating profit to be in between £35 million-£40 million. FSJ has taken swift actions to reduce costs and improve liquidity position. The Company is seeking an improvement in market conditions to deliver growth to shareholders in future. The stock made a 52-week low and high of GBX 735.00 and GBX 2,190.00, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for James Fisher and Sons Plc at the current price of GBX 827.32 (as on 10 November 2020, before the market close at 11:40 AM GMT) based on 15.10x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

*Dividend Yield may vary as per the stock price movement.

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

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