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Trainline downgraded to ‘hold’ by Panmure Gordon as Virgin Trains launches app

Its analysts kept the 517p target price unchanged as they "continue to believe in the quality and management" of the company

Trainline app

Trainline PLC (LON:TRN) shares fell on Friday as the group's rating was downgraded to ‘hold’ from 'buy' by Panmure Gordon over concerns about competition from the new Virgin Trains app.

Analysts at the City broker maintained their 517p target price on the FTSE 250-listed stock as they "continue to believe in the quality and management" of the company, which is an independent digital ticketing platform for trains and coaches.

READ: Trainline sees small impact from French transport strikes

Virgin Trains, a joint venture between Virgin Group and Stagecoach Group PLC (LON:SGC), is launching a new app over the next months to keep a foot in the industry after losing its rail franchise.

Virgin’s offering will remove booking fees, which make up 12% of Trainline’s annual revenue.

If Trainline were to chop off booking fees, its profits could be slashed by up to a third, according to Panmure Gordon's analysts.

Another threat is Virgin Train’s proposal of account-based ticketing (ABT), which allows users to tap in and out of the network and charges at the end of the day with a ‘best price’ promise, like the Oyster card in London.

“At this stage it is unclear whether ABT will become a product the industry supports… but if it did, it is likely to eat away at average transaction values,” analysts said in a note to clients.

Government review

More hurdles may come as the government plans to introduce pay-as-you-go systems in major UK cities, potentially reducing the size of Trainline’s addressable market and growth in on-the-day sales.

Increased digitalisation would benefit the company, but “working through the details and monetising this could take some time”, the Panmure analysts concluded.

Trainline shares dipped 1% to 499p on Friday.

Quick facts: Trainline

Price: 290 GBX

LSE:TRN
Market: LSE
Market Cap: £15.35 m
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