ii view: Mobico pins hopes on transformation plan

Second-quarter trading update to 30 June

• Revenue up 5% year-over-year

Guidance:

• Continues to expect full-year adjusted operating profit of £215-230 million

ii round-up:

National Express coaches owner Mobico Group (LSE:MCG) detailed increased revenues driven by its European coach subsidiary Alsa and a return to full service for the group’s German rail operation.

Second-quarter revenues to late June climbed 5% from a year ago, with the transport operator maintaining its estimate for annual adjusted operating profit of between £215 million and £230 million.

Shares in the FTSE Small Cap company rose marginally in post announcement trading have come into this latest news down by around a tenth over the last year. Fellow transport operator FirstGroup (LSE:FGP) is down by around a fifth over that time. The FTSE Small Cap index has gained by 14% over the last year.

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Mobico is now pursuing a strategy to simplify and expand its profit margin, as well as concentrate on cash generation and selected asset-light growth opportunities.

In August, Mobico agreed the sale of its UK bus division to the West Midlands Combined Authority for approximately £24 million upfront and an additional £5.5 million of deferred proceeds.

Revenue at the UK bus division fell 1.8% this latest period. Management believes its sale de-risks Mobico given the expected franchising of services under the UK government with the sale expected to complete in November.

Second-quarter Alsa sales rose 13.7% when excluding the UK coach business, with German rail improving 19.3%.

Revenue at the UK Coach business fell 16.7%, hindered by reduced demand and the axing of unprofitable routes. Similarly, sales for WeDriveU, the North American coach operation, fell 11.8% as loss-making routes were cut.

ii view:

Mobico came to the UK stock market in 1992. Alsa coaches generated most adjusted profit over the group’s last extended 15-month financial year to late March 2026 at £249 million. WeDriveU came next with a profit of £25 million, with German rail £17 million and UK Buses £2.4 million. A loss of £22.9 million for the UK Coach business added to central costs of £39.5 million.

For investors, group net debt of £1.13 billion as of late March compares to a stock market value of under £150 million. The group’s UK coach business proved loss-making over its last financial year. The sale of UK buses adds to a previous sale of North American school buses and reduces business diversity, while exposure to volatile fuel costs is also not to be forgotten.

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More favourably, a high focus on reducing group debt is ongoing. A transformative ‘Simplify, Strengthen and Succeed’ strategy includes the targeting of £100 million in annualised cost savings. Annual adjusted profit guidance for 2026 of £215-230 million is up from a previous estimate of £195-210 million, while 28 new contracts were won during the group’s last financial year representing total revenues of £682 million.

In all, the perceived environmental benefits of shared transport and a consensus analyst fair value estimate above 35p per share offer hope. However, more cautious investors are likely to await further evidence of a turnaround and a reduction in group net debt before taking an interest.

Positives:

• Positive environmental benefits
• Focus on costs

Negatives:

• High net debt
• Competitive UK market

The average rating of stock market analysts:

Hold