Ahead of Trainline PLC's (LSE:TRN) interim results on Thursday, JPMorgan said the shares are now offering a fairer risk/reward as regulatory changes in UK Rail are now "manageable".
Shares in the online ticketing company have halved since before the pandemic from almost 550p to just over 250p for most of the past year, with its rating versus peers moving to a 33% discount versus 12% at the start of 2023.
This was despite strong trading reported for the first half of the year, with Trainline launching a £50 million share buyback back in September's trading update, following a half-year where ticket sales rose 23% and revenue jumped 19%.
For the full year, it guided to net ticket sales growth of 13-22%, revenue growth of 13-22% and adjusted EBITDA of 2.15-2.25% of net ticket sales.
Seeing the risk/reward ratio turning, JPM said it was upgrading its rating to 'overweight' and nudged up its target price to 300p from 295p.
The de-rating, the investment bank believes is driven by investor concerns on the complexity around changes in UK rail regulation, including a new GBR app, potential expansion of the UK pay-as-you-go network, "which overshadows strong passenger momentum".
But the potential emergence of a GBR branded website or app "appears less likely to us with no formal tender process having even been initiated", the analysts said in the note, which was first published on Friday.
"Even if one does emerge at some point, it may take years to roll-out - by then, Trainline's online market share will have expanded further with limited reasons for commuters to then switch, in our view."
A potential white label contract loss is estimated to result in a "very manageable" £5 million EBITDA loss potential, around 3% of the group total.
Meanwhile, the JPM team flagged "upside risk" from rapidly rising online share in the UK, where it sees Trainline as the "key beneficiary", and increasing carrier fragmentation in Europe driving online ticket sales momentum.