National Express Group PLC (LON:NEX) saw its shares backtrack after its 2020 results statement revealed the full extent of the hit it took from UK lockdowns.
Group revenues slumped 28.7% to £1.96bn from £2.74bn in 2019, while underlying earnings (EBITDA) crashed 63.4% to £186.6mln from £510.1mln.
The buses operator posted an underlying loss before tax of £106.1mln for 2020 compared to a profit the previous year of £240.0mln; the statutory loss before tax figure at £444.7mln was even larger, largely as a result of £262.5mln of losses resulting from the coronavirus (COVID-19) pandemic.
Ignacio Garat, National Express Group’s chief executive, has initiated a wide-ranging business review to identify areas where the group can improve its existing businesses, although he said does not believe there is a pressing need for radical change.
“I believe that the trajectory is improving, with the fourth quarter of 2020 our strongest of the year and the global vaccination roll-out accelerating,” Garat said.
“We have seen this momentum continuing into 2021 with slowly improving revenue trends and positive EBITDA in January and February. Further, we have sufficient liquidity to see us through our most pessimistic scenarios and have further strengthened our balance sheet in 2020,” he added.
Despite the strengthened balance sheet, the board is not yet ready to reinstate dividend payments but intends to do so as soon as economic conditions allow.
“It is clear that 2021 will represent a 'transition year' to a post-pandemic future and much will depend on the effectiveness of mass vaccination programmes to enable travel restrictions to be lifted,” Garat said.
The shares were down 3.5% at 302.8p in mid-morning trading.
Jack Winchester, an analyst at Third Bridge, said the past year had been “a bumpy ride for National Express”.
“Despite quarterly revenue trends indicating some recovery through the back end of 2020, revenue numbers for the year were still down almost 30% for the year. This had an outsized impact on profitability, given the relatively fixed cost base for National Express,” Winchester said.
“Until Covid put a roadblock in the way, National Express had been a reliable cash generator for several years. Now two big questions loom over the company,” Winchester suggested.
“Investors are wondering when passengers will start using their services again and be happy to sit in close proximity. In Europe, National Express’ revenues largely rely on intercity and small-town bus routes which need to run near capacity to make profits. In the US, National Express has a large business taking children to school but many remain closed. National Express faces the same problem in its second-largest geography, Spain.
“The coach operator also faces a growing regulatory risk. In Spain government regulations look set to make retaining higher-margin bus contracts much more difficult. Our experts expect this to hurt the company’s profitability over the medium term,” Winchester said.
Broker Liberum said the full-year loss was in line with expectations, while net debt, at £941.6mln, was healthier than the consensus forecast of £1.16bn.
“Where there has been support from governments or customers, minimal profitability was maintained. The UK long-distance coach unit received no such support and was the worst hit. While this means the group is less well underpinned than peers, it is also more sensitive to the eventual recovery,” the broker said, as it stuck to its ‘buy; recommendation, despite the recent sharp rise in the share price overtaking its target price of 275p, which is under review.
“On fully recovered earnings, a 2022E P/E [projected price/earnings ratio] of 9.4x and EV {Enterprise Value]/EBITDA of 5.6x are still well below the pre-pandemic trading range (FY1 P/E 12x, EV/EBITDA 8x); however, considerable uncertainty remains over the timing and pace of the recovery,” Liberum acknowledged.
UK company reports today #5 -
National Express - 'a strong and diverse international transport platform that has demonstrated its resilience in recent months...clear set of priorities to ensure we will return to growth in a prudent & safe manner. We will be competing to win' pic.twitter.com/PHIrO5QPXb
— Chris Bailey (@Financial_Orbit) March 18, 2021