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National Express becomes largest transport operator in Morocco after fifth contract win

The FTSE 250-transport provider said its Spanish and Moroccan division ALSA had been awarded the contract, which would be its largest in the kingdom
National Express coach
The contract is expected to carry 109mln passengers per year across 61 routes

National Express Group PLC (LON:NEX) has become the largest transport operator in Morocco after securing a €1bn bus contract, its fifth in the country.

The FTSE 250-transport provider said its Spanish and Moroccan division ALSA had been awarded the contract, which covers the cities of Rabat, Salé, and Temara and would be the division’s largest in the kingdom, for an initial period of 15 years, with an option to extend for a further 7 years.

READ: National Express rebuffs snowy weather with revenue growth at start of 2018

The contract is expected to carry 109mln passengers per year across 61 routes and was expected to commence within a year and secure €1bn over its lifetime.

ALSA will operate the contract as a majority shareholder in partnership with CityBus, a local transport company.

With the addition of the new contract, ALSA’s Moroccan business will carry 265mln passengers each year with a fleet of 1,000 buses in the country.

In a note to clients, analysts at City broker Liberum commented: “Contract life revenue is estimated by management to be €1bn, although it is unclear if that covers the 15-year initial term only or includes the extension option. Also, the group has won the bid with a local JV partner, CityBus, and it is unclear what percentage National Express will own.

They added: “Nonetheless, this is a positive development, consistent with the group’s strategy of expanding its international exposure through contract wins, and we believe this is one of the larger opportunities the group has been pursuing.”

However, Russ Mould, investment director at AJ Bell, poured some cold water on the announcement: “A €1bn contract to provide bus services in Morocco initially sounds like a major development for transport operator National Express. But look closer and it is clear that the business isn’t suddenly going to come into a big sum of money.

He added: “The €1bn contract runs over 15 years – or in other words €66.7mln a year. While still not an inconsiderable sum, you have to bear in mind this amount is revenue and not profit. As National Express and several of its peers have demonstrated in the past, there are no guarantees on how profitable transport contracts will be.”

In early morning trading Wednesday, National Express shares were steady around 397.2p.

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