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National Express still on the road

The coach operator asserts that its balance sheet can withstand further deterioration
March 18, 2021
  • Transport group finished 2020 with £1.9bn in total liquidity
  • “Trajectory is improving”, according to management

Even by the standards of its most-sapping long-distance coach journeys, the route that National Express (NEX) was forced to take last year was exhausting.

The trip started brightly enough. In the first two months of 2020, revenue growth was ahead of schedule at 17 per cent, as expansion in the US transit and shuttle businesses was supplemented by big Moroccan contract wins for Spanish-headquartered bus group Alsa.

Then the engine failed and everyone was ordered off. The “immediate and unprecedented impact” of Covid-19 was an 80 per cent decline in passenger demand, but by the end of December the final bill had come to £263m, including £110m in cash.

Roadside recovery – in the form of £300m from various government furlough support schemes – was essential to preventing further balance sheet damage. So too was an emergency stop in May to sell £235m in new shares via a placing.

Then the driver said he would be alighting at the next stop. After chief executive Dean Finch tendered his resignation for the top gig at housebuilder (and house of executive largesse) Persimmon (PSN), finance director Chris Davies manned the steering wheel until November, when FedEx executive Ignacio Garat took over just in time for the fresh wave of lockdowns.

A perennial fear throughout this painful voyage has been the levels of fuel in the tank. Fortunately, the share placing and forgiving bond creditors have eased liquidity concerns, and left management with £1.9bn in cash, undrawn banking arrangements and the Bank of England’s committed commercial paper-buying facility.

Fast forward to March 2021, and the voice on the tannoy system is almost chipper. Citing a better-than-expected fourth quarter of 2020, the vaccination roll-out and improving revenue and the return of cash profits, Garat believes the “trajectory is improving”.

“We have sufficient liquidity to see us through our most pessimistic scenarios and have further strengthened our balance sheet in 2020,” he added.

Plenty of road bumps lie ahead, though National Express has emerged from the pandemic in better shape than anyone could have expected. Assuming vaccines beat back passengers’ fears around close-proximity voyages, the shares look like a solid play on the gradual shift to lower-emissions travel.

So while there is an inevitable finger-in-the-air quality to analyst forecasts – this year, adjusted earnings are for 5.5p per share, rising to 25.6p in FY2022 – the longer-term prospects look decent. It is worth remembering that continued investments and network growth had resulted in double-digit returns on equity in each of the five years before 2020. Hold.

NATIONAL EXPRESS (NEX)  
ORD PRICE:303pMARKET VALUE:£1.86bn
TOUCH:302.4-303p12-MONTH HIGH:329pLOW: 66.3p
DIVIDEND YIELD:NILPE RATIO:N/A
NET ASSET VALUE:234p*NET DEBT:64%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20162.0913523.012.30
20172.3215625.713.50
20182.4517826.614.86
20192.7418727.65.16
20201.96-445-57.9nil
% change-28.7---
Ex-div:n/a   
Payment:n/a   
*Includes intangible assets of £1.85bn, or 302p a share