ii view: National Express stuck in second gear

A first-half loss, no dividend and little outlook clarity leave investors looking to alight. 

First-half results to 30 June  

• Revenue down 23% to £1.03 billion
• Adjusted loss of £61 million, down from a profit of £114 million
• Net debt up 5% to £1.34 billion
• Dividend suspended

Guidance: 

• No current full-year 2020 financial estimates

Chief executive Dean Finch said:

"This has been an unprecedented period for us all and I am very proud of the response of colleagues across National Express. We worked quickly to put safety measures in place to protect customers and colleagues. Tragically we have lost valued colleagues to Covid-19 and have supported each family.

"During the lockdowns we proactively communicated with customers to vary service and negotiate additional support and payments. We have also secured exceptional governmental funding across all of our major markets and made use of furlough schemes. We were swift to save operating costs as we have nimbly reduced service. Alongside the actions taken to secure additional liquidity, covenant waivers and our recent Placing, the Group has significantly strengthened its financial position to navigate the pandemic. 

"As we have restarted services, we have again worked closely with customers and ensured safety is paramount. While there are some signs of demand returning, levels are both significantly reduced and subject to variability given local lockdowns, the impact of quarantines and uncertainty over the extent of US school re-openings. We do not know when pre-pandemic levels of demand will return but have developed plans to respond to future scenarios and maintain safe and efficient operations thereby ensuring the continued financial well-being of the Group."

ii round-up:

UK and international bus, coach and rail operator National Express (LSE:NEX) today posted a £61 million loss, driven by a dearth of passengers at the height of the coronavirus pandemic. Passenger numbers fell by 80% at the peak of the crisis.

National Express operates services across eight countries including the UK. The US and the provision of both school buses and coaches is its biggest market accounting for around two-fifths of sales. 

The share price fell by more than 10% in UK trading and is down over 60% year-to-date. Rival transport operators such as Stagecoach (LSE:SGC) and Go-Ahead Group (LSE:GOG) have seen their shares fall by a similar amount in 2020. 

While many of the services cut at the height of the lockdowns had recommenced, and some encouraging signs of growth in passenger numbers had been seen, activity still remains at suppressed levels. 

Measures to boost group cash had included an application to the Bank of England’s Covid financing scheme. The draw down of banking facilities and the sale of new shares to investors via a placing. In all, new sources of funding had raised £1.5 billion since the pandemic commenced.  

Other measures to battle Covid had included furloughing staff, reducing senior management salaries and cutting costs to the tune of £300 million in the second quarter. 

Group brands include National Express itself in the UK, ALSA coaches in Spain, yellow school bus provision in both the US and parts of Canada and the Rhine-Münster train express in Germany. 

Management continues to offer no full year 2020 guidance or financial estimates given the degree of uncertainty for the outlook. 

ii view:

National Express operates a fleet of over 31,000 vehicles and makes more than 938 million passengers journeys each year. It employs more than 51,000 people. Tragically, It has lost 12 staff members to Covid-19 during the pandemic. Outside of the US, Spain is its next biggest market, followed by the UK. 

Management points to the diversification of the company in recent years in helping to provide resilience during the pandemic. It is also the leading operator in many of its markets. Climate change initiatives including congestion charging schemes and its strength of bus and coach operations offer appeal. 

For investors, the previous suspension of the dividend is a blow, with an aspiration outlined to reintroduce it come half-year results in 2021. Despite strengthened liquidity, group finances remain of concern given the unknown time frame through which it may have to navigate. More favourably, climate change concerns should benefit an operator of public transport. In all, the willingness of governments to assist the sector does offer support, but pandemic uncertainty means any investment requires faith in prospects for the long-term.  

Positives: 

• Potential beneficiary of climate change initiatives
• Diversity of operations 

Negatives:

• Dividend payment suspended
• Many US schools remain closed

The average rating of stock market analysts:

Hold