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Mobico: National Express’ new name can’t hide its financial woes


Mobico [LON:MCG], the Birmingham-based, FTSE250-listed public transport provider, formerly known as National Express, is preparing itself for a busy end of the year.

Immortalised in the song National Express by the Divine Comedy, the firm has been a British institution since the early 1970s with the privatisation of the National Bus Company, and provided city-to-city coach travel and was a standard lower-cost travel option for students and families.

A management-buy-out was completed in 1988, but by the early-1990s the company was already performing badly, and another MBO followed, backed by private equity and in 1992 the company made its stock market debut.

National Express is best-known for its coach service, but it also operates local bus services and railways. It had a number of rail franchises in the UK including the National Express East Coast and InterCity East Coast franchises. However, National Express found itself in deep-water with its rail franchises in the UK defaulting on the East Coast line, and ultimately losing the franchise, after a history of very poor performance, and is no longer in the rail business in the UK. However, the company does still run several rail franchises in Germany. The company also runs several bus and coach services in North America, including municipal school bus services.

The UK rail adventure got National Express into trouble, as it had overbid for the franchise, and after a history of growth through acquisition, itself became the target for a number of protracted, but ultimately unsuccessful bids in 2009.

The 2010s saw National Express recover a bit, mainly on the back of this-time successfully running its rail franchises in Germany, and by 2021 felt it was in a strong enough position to try and take out one of its biggest rivals, Stagecoach Group, and put a bid in that received regulatory approval, but was rejected by Stagecoach, which opted instead to be acquired by German private equity group, DWS [FWB:DWS].

National Express adventure into ‘day-tripper’ market

Earlier this year National Express decided it wanted to get into the ‘day-tripper’ market, and combined several of its subsidiaries (Coliseum Coaches, Lucketts Travel, Mortons Travel, Solent Tours, Stewarts Tours, Woods Tours and Worthing Coaches) into one operating brand, Touromo. However, six months later, after a rebranding and marketing exercise, National Express decided to pull out of the day-trip market and in October it stopped offering the option.

National Express hasn’t covered itself in glory, and perhaps with some of the designs left over from the failed Touromo experiment, decided to rebrand itself and rename the company, Mobico.

Shareholders seem to have been voting with their feet despite the name change. Mobico opened trading on 7th December at 68p. Over one-year Mobico fell -57.54% and over five years is down -82.5%. The company’s shares have ranged between 54.55p and 173p over a 52-week period. The company has a market cap of GBP419m.

The last trading update from October made grim reading with the board sounding like a government minister trying to explain away massive catastrophic failure in policy. The company explained that full recovery in profitability was taking longer to deliver, and that decisive action being taken on our cost base and to accelerate deleveraging.

Mobico profitability concerns

CEO, Ignacio Garat said: “We recognise that the recovery of our profitability will take longer than we had previously expected. That is why we are announcing decisive actions to ensure we deliver sustainable profitability from our growing revenue base. Whilst our belief in the potential of the group remains strong, we will move at greater pace with new leadership teams in the UK and North America.”

The company’s revenue growth was up 10% year-on-year, but has had difficulty creating profit, and had to advise that earnings would now be in the range of GBP175m to GBP185m and reemphasised  that it was trying to make things better by imposing a productivity and cost reduction programme to deliver GBP15m this year and GBP30m annualised savings and had “launched” further actions “to further improve cost efficiency and expected to deliver additional GBP20m annualised savings.”

The company also advised that it might divest from its US School Bus service. Unsurprisingly Mobico suspended its final dividend.

At the half-way point of the year to end-June, earnings were down 19.3% year-on-year on a constant FX basis to GBP166.7m and profit was down 39.7% to GBP57.5m with profit before tax reported as GBP25.4m. In 1H22 profit before tax was GBP68.7m, with group operating profit of GBP8.7m for 1H22, down nearly 80% and Mobico managed to convert a GBP15.2m profit after tax in 1H22 to a GBP39.4m loss in 1H23. The company said that profits were affected by the removal of Covid-19 funding support.

At the end of June, Mobico’s net debt was GB908.5m. By September this had increased by EUR500m having issued bonds at a coupon of 4.875% under its GBP1.5bn medium term notes programme. The bonds will in part pay off the company’s existing debts. The company also refinanced GBP600m of its bank debt.

Despite its name and branding change, Mobico will still be wrestling with the same problems next year, and its weakness might even make it an acquisition prospect. If you are looking for exposure to the Transport Sector, it might be worth looking at Mobico’s competitor, FTSE250-listed, Aberdeen-based FirstGroup LON:FGP. If Mobico doesn’t find the right gear soon, you may see it sitting in the hard shoulder waiting for the recovery truck to arrive.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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