Shore Capital has told investors that the sharp fall in Trainline PLC (LSE:TRN, FRA:2T9A) shares is punishing the ticketing platform for a worst-case outcome that is unlikely to materialise.
The FTSE 250 company has shed £185 million in market value since the Competition and Markets Authority (CMA) opened an investigation into how booking fees are presented to customers.
Shore argues the 19% drop since Tuesday implies a permanent £30 million cut to annual earnings before interest, tax, depreciation and amortisation, a hit the broker regards as far too severe.
That valuation, it says, effectively prices in the complete removal of booking fees alongside a structural shift in customer behaviour, neither of which the regulator has demanded.
The broker has kept its 'buy' rating and a 400p target price, more than double the level at which the shares have been trading.
Central to Shore's case is that the regulatory threat looks smaller than the sell-off suggests.
The CMA is examining whether mandatory fees are shown upfront or only later in the booking journey, a practice known as drip pricing, but has not found any breach of consumer law.
Recent CMA penalties in other sectors have landed well below the theoretical maximum of 10% of global turnover, ranging from £0.7 million to £5 million.
Trainline has also been in talks with regulators for months and has already explored technical changes to how fees are displayed, indicating the issue is neither new nor a surprise.
Only 30% of UK tickets carry a booking fee, and most purchases made on the day of travel are exempt.
Shore points to growth in Europe and business-to-business services as reasons to look past the regulatory noise, noting the shares now trade at less than five times earnings before interest, tax, depreciation and amortisation.
Investors appeared to take a similar view on Monday, with the stock recovering 2.38%, or £4.70, to £202.20 in early trade.
