With lockdown measures easing in the UK this week, people are starting to think about how they are going to get to work again. So our stock of the week has a transport theme and National Express (NEX) has arrived comfortably ahead of rivals FirstGroup, Stagecoach and Go-Ahead to win this week's poll.
The National Express coach brand will be familiar to cost-conscious Brits keen on making on cross-country trips, but its corporate reach extends as far as the US – where it runs the iconic yellow school buses. Trains also make it into the transport mix with coaches and buses, with National Express running five rail franchises in Germany.
The UK coach network was back in action this week after an 11-week suspension because of lockdown, but the firm is running a limited timetable until pandemic rules ease and as commuters slowly return to their workplaces in the coming months. “With lockdowns and restrictions still in place in many territories, the outlook for the current year and the timing of the recovery remain difficult to predict,” the company says - though it points out that there has been a rapid recovery in demand when restrictions have previously lifted.
The group has just released full-year financial results to the end of December, a period that covers the outbreak of the pandemic and multiple lockdowns. Unsurprisingly, National Express made a pre-tax loss of £106 million in 2020, compared with a profit of £240 million in 2019. Group revenue fell nearly 30% to £1.96 billion from £2.74 billion in 2019. To shore up its balance sheet during this period, the company has reduced its debt, cut costs and raised money from bondholders as well as using UK Government funding.
Like many companies in the sectors most affected by coronavirus, National Express shares are still trading below pre-pandemic levels – they started 2020 at around 470p per share and are now at 309p. But the shares have made a strong recovery and have doubled since the autumn, helped by the Government's “roadmap” to ease lockdown, the vaccine rollout and a strong rotation from fund managers back into value stocks.
The Outlook for National Express
National Express shares are in the top 20 best performers on the FTSE 350 over a year and six-month period, according to analysis by AJ Bell. In its latest results, National Express said it plans to reinstate its dividend when the UK economy improves. The company is still held by a number of UK equity income funds, including Silver-rated JPM UK Equity Income.
Jack Winchester, analyst at Third Bridge, says that before Covid-19 the company had been a reliable cash generator for a number of years. A year on though, are commuters ready to get back on the buses? “Investors are wondering when passengers will start using their services again and be happy to sit in close proximity,” he says. This is particularly true in Europe, where bus routes need to run at near full capacity to be profitable; something which is much harder to achieve in the era of social distancing when certain seats need to be kept free.
Talk of a “third wave” in continental Europe will also be a concern ahead of tourist season. For example, Spain, the company’s second largest market, has maintained lockdown restrictions across most of its regions to curb travel during the Easter holidays. Winchester also says there is a growing threat from tighter regulation, especially in markets like Spain: “Our experts expect this to hurt the company’s profitability over the medium term."
AJ Bell’s investment director Russ Mould says that in the UK at least, older travellers may prove a silver lining for National Express: “What could help is demand from a newly vaccinated older cohort making spring and summer holiday bookings with the group. Around 98% of its holiday customers are over 65s and it has seen a big surge in bookings.” He also says that longer-term, the carbon transition is a positive for companies like National Express that are encouraging people to get out of their cars.
