It was all going so well for National Express before Covid-19. The FTSE 250 passenger transport group was basking in double-digit revenue rises during the first two months of the year (Miles Costello writes).
But when lockdowns took place in its main markets a month later, the company’s bus and coach services were decimated. Its long-haul trips effectively were shut down and the short-hop routes in some cases had barely any passengers to carry.
So far the group has been able to trade profitably before interest and other charges but — like the rest of its sector — has been forced to fill up on government support schemes, extract contracted revenues from customers and seek emergency funds from shareholders. It’s a baptism of fire for the new chief executive, Ignacio Garat, 52, who took charge in November after the longstanding previous boss, Dean Finch, 54, was snatched away to run Persimmon.
National Express was created during the privatisations of the 1980s and listed in 1992. No longer involved in the UK’s rail network but with a small business running trains in Germany, the group has leading positions in the bus and coach market, operating in Spain, Morocco, North America and parts of Britain. Here, it runs intercity coach services and local buses in Birmingham, other parts of the Midlands and Dundee. In the US, it has contracts to provide school buses and on both sides of the Atlantic it provides plush transport services to take people to work, including for companies such as Facebook.
The experiences of its various arms have differed during the crisis but what helped the group enormously was that most of its revenues are received under contracts so in most cases it was entitled to continue to receive payments. The group also took advantage of various state support schemes and put 40,000 of its 51,000 staff on furlough.
Revenues over the six months to the end of June fell by 22.7 per cent to just over £1 billion and National Express dropped to a statutory pre-tax loss of £122.2 million with underlying earnings sliding by nearly 64 per cent to £88.3 million.
Fast forward several months and, as economies began to reopen from July, a healthier picture emerged. Last month the group said that it had secured the equivalent of 70 per cent of last year’s monthly revenues in October, up from 60 per cent in August and against its initial target of 50 per cent. It has also continued to win contracts, including two each in the UK and Portugal and one in California.
Having borne the initial start-up costs of the new academic year in the US, National Express last month guided investors to expect underlying earnings before interest and other items of between £170 million and £190 million. That is a shadow of last year’s £510.1 million but shows that the company is successfully managing to trade through the crisis.
Mr Garat, a former executive at Fedex, the logistics group, inherits a company with tight cost controls and leading positions in each of its chosen markets. It also has plenty of room to grow, in particular in the “transit” market for transporting workers. It is mindful of the move to green energy, buying no more diesel buses and converting its fleet time to electric or hydrogen vehicles.
The shares, up 4¾p or 2 per cent to 245p, are way below their 438p level in July last year, when the column recommended buying them. But they are cheap, trading at 10.5 times Citi’s forecast earnings for a prospective yield when the dividend returns, possibly in 2022, of 4.6 per cent. Those who can live without the income until then should take advantage.
Advice Buy
Why Times are tough but the group is navigating the crisis and should emerge stronger on the other side
Smart Metering Systems
Companies involved in the energy transition are starting to lay out their own plans to move towards net zero emissions (Greig Cameron writes).
Smart Metering Systems said yesterday it intends to be in that position by 2030.
The Glasgow company is spreading its wings beyond the installation and management of energy meters and the analysis of the data they provide.
It has a pipeline of two million smart meters to be put into homes in the next few years which is more than enough to keep it growing.
It is in also early talks with water utilities in Australia about trials of devices and sees long-term potential for expansion in that market.
Closer to home it is advancing plans to manage other assets involved in carbon reduction.
It has also secured the rights to 117.5 megawatts (MW) of battery storage projects which should be completed by the end of next year.
There is an exclusivity agreement over a further 150MW which could be available in the middle of 2022.
In addition it is looking at solar and battery storage options for homes, electric vehicle charging infrastructure and heat networks.
Tempus rated the company as a “buy” in early July because its pipeline of smart meter work will give it a steady revenue stream to underpin a rising dividend.
The payment is likely to be 25p for this year, up from 6.88p last year, and there are plans for it to rise in line with the retail prices index to 2024.
The shares have been bumpy this year, falling to a low of 450p in the wider market sell-off in March. They had recovered to 618p when Tempus last looked at the company and in recent days have been changing hands at more than 700p.
Installations of smart meters are about 80 per cent of where they were before the pandemic in spite of local lockdowns over recent weeks.
SMS said that its pre-tax profit for this year is likely to be just ahead of market expectations of £11 million.
The company is on course to end this year with £30 million of net cash, which is down from £44.5 million at the end of June as it works through the installation programme.
Advice Hold
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