ii view: optimism at National Express after strong April

Is this transport operator both a pandemic and climate change play? We assess prospects. 

Trading update from 1 January to 30 April

Chief executive Ignacio Garat said:

"I am pleased to see the continued improving performance trajectory across our business in the first four months of 2021 despite the ongoing lockdown restrictions. It is very encouraging to see the positive impact on profit delivery of the management actions taken last year.

“Whilst we remain focused on managing what we can control, we remain confident that as restrictions across the world are lifted we will see a strong recovery in demand for our services."

ii round-up:

UK and overseas transport operator National Express (LSE:NEX) today reported a 50% improvement in April revenues compared to April 2020 as pandemic restrictions eased and travellers returned to its services. 

Adjusted profit had also proved slightly ahead of management expectations, with positive underlying operating profit delivered in March and April, strongly ahead of last year.

National Express shares were little changed following the results, having almost doubled since the end of October, just prior to the announcement of vaccine development success. Shares for fellow transport operators Stagecoach (LSE:SGC) and Go-Ahead Group (LSE:GOG) have more than doubled, while shares for FirstGroup (LSE:FGP) are up around 80% over the same time. 

Revenue for the first four months of 2021 were down 16%, with the start of 2020 largely unaffected by Covid-19 restrictions. 

Allowing for the ongoing travel restrictions, management continues to expect a first-half performance at least in line with the second half of 2020. But a robust improvement for the second half of 2021 is forecast given the ongoing rollout of vaccination programmes both in the UK and overseas. 

Employing over 50,000 staff, National Express operates services across eight countries including the UK. The US and the provision of both school buses and coaches provide for its biggest market accounting for around two-fifths of total sales - followed by Spain and then the UK.

Around 90% of its North American school bus routes are now in operation. Revenues for its Spanish coach operation are currently running at around 75% of 2019 levels, despite ongoing Covid restrictions, while its UK bus services remain supported by the government. 

Group liquidity of approximately £0.9 billion in cash and undrawn committed facilities is expected to be held come the end of first half in late June. 

First-half results are scheduled for 29 July. 

ii view:

National Express operates a fleet of over 31,000 vehicles. Its 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. Headquartered in Birmingham, its passengers made 938 million journeys on its services during 2019. The German rail business accounts for under 4% of total sales.  

Relatively new chief executive Ignacio Garat previously began a review of group operations. Its remit includes identifying growth in existing countries along with new potential geographies to target. It won £900 million of new contracts across all divisions during 2020 including a first entry into Portugal. It is also pursuing a move to a fully zero emission fleet in the UK, with similar targets for its overseas operations being assessed. 

For investors, the still Covid-clouded outlook and the current halting of its dividend payment offer caution. More flexible working from home options in the wake of the pandemic could also dent future sales. That said, the diversification of National Express in recent years is considered by management to have provided resilience during the pandemic. Two of its three biggest markets, the US and UK, currently have high rates of vaccination rollouts. And US president Joe Biden is looking to reduce emissions under climate change initiatives. In all, while some caution looks sensible, the balance of risk-reward appears to have swung in favour of the latter. 

Positives: 

• Diversity of operations 
• Potential beneficiary of climate change initiatives

Negatives:

• Ongoing pandemic uncertainty
• Dividend payment suspended

The average rating of stock market analysts:

Strong buy