Interactive Investor

Insider: FTSE 250 foursome buy shares at rock bottom  

5th June 2023 09:16

Graeme Evans from interactive investor

It’s been a rotten couple of years for this firm, but might boardroom buying hint that the tide is about to turn? There’s activity at high-flying Bloomsbury and SSE too.

Stalled National Express Group (LSE:NEX) shares sparked into life on Friday after four directors revealed investments totalling £150,000 in support of the transport giant’s recovery.

The purchases, including ones by chair Helen Weir and chief executive Ignacio Garat, were made with the FTSE 250 stock back near lows seen in the early months of Covid.

That’s despite the resumption of dividends through last month’s 5p a share and with City analysts backing the stock to accelerate as trading conditions become less challenging.

The company, which is soon to change its name to Mobico, closed last week at 111.9p after Friday’s 5% rise, whereas Peel Hunt has a price target of 215p. They described the company’s current share price as good value for “one of the last recovery plays in the sector”.

Counterparts at UBS and HSBC see the potential for shares to reach 200p and 235p respectively although Liberum is more cautious at 125p amid concern over a debt leverage ratio that finished 2022 at 2.8 times.

When National Express last updated investors in mid-April, Garat “reported another quarter of progress” as revenues rose in line with expectations by 25% to £774.4 million, albeit against an Omicron-impacted comparative.

He highlighted a continuing strong performance for the Spanish Alsa business acquired by National Express in 2005, as well as strong recoveries in UK coach and for the operator behind the Rhine-Münster Express and Rhine-Wupper-Bahn rail services in Germany.

Passenger growth in the UK bus division has been offset by a six-day driver strike and associated pay settlement, while driver recruitment and route reinstatement have been issues affecting the North American school bus operation.

Garat told investors that the most significant trading periods for the US School Bus and UK and Spanish coach operations still lie ahead in the financial year.

He also revealed plans for at least £25 million of annualised savings but said that this would not affect front-line roles or the capacity for growth. Debt reduction remains a priority, with Garat expecting to be close to the group’s target covenant leverage range of 1.5x-2x net debt to earnings by 2025’s first quarter.

Should the group rebuild profits and overcome the balance sheet risk, HSBC said shares look inexpensive on a forward multiple of 4.7 times 2025 earnings. The bank added: “Despite there still being some way to go, we see the risk reward as good and retain our Buy rating.”

However, Liberum said the cost savings pointed to the group having to work harder to meet expectations. Its analyst Gerald Khoo continues to see FirstGroup as a more attractive way to play the expansion of public transport as governments pursue decarbonisation targets.

National Express shares have been in decline ever since they peaked at over 300p a year after the start of the pandemic. They last traded above 150p at the end of last year.

Weir, who became chair in January having previously held finance director roles at Marks & Spencer and Lloyds Banking Group, made the biggest investment among last week’s boardroom purchases by spending £48,000 on shares at 106.8p.

Garat set aside £20,000 on Thursday at 108.2p, while chief financial officer James Stamp and general counsel Simon Callander both spent £40,000.

Ex-FTSE 100 finance boss buys twice

John Bason, whose 24 years as finance boss of Associated British Foods ended in April, has spent £80,000 in support of his boardroom roles at SSE (LSE:SSE) and Bloomsbury Publishing (LSE:BMY).

His purchase of Bloomsbury shares was made on Thursday after annual results the previous day revealed record sales and profit ahead of recently upgraded expectations.

The company also increased the full-year dividend for payment on 25 August by 10% to 10.34p a share, in line with a policy aimed at keeping earnings cover in excess of two times.

Its boss Nigel Newton told investors: “In challenging economic times, readers are turning to books as affordable as they cut back on more expensive forms of diversion.”

The robust results by the Harry Potter publisher failed to change the narrative for the FTSE All-Share stock, which closed the week at 408p compared with 472p in mid-April.

The purchase of £40,000 shares by Bason, who has served as a Bloomsbury non-executive director since April 2022, took place at a price of 408.5p.

He made a similar sized purchase the previous week by picking up 2,117 SSE shares at a price of 1,889p. The renewables energy giant ended Friday’s session back at 1,868p, despite annual results on 24 May prompting Bank of America analysts to raise their target price to 2,150p.

They noted that the City’s consensus earnings per share forecast is between 20-30% below the company’s 2027 guidance range. The bank said: “We expect positive earnings revisions to be the main catalyst for continued share price re-rating.”

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