ii view: Mobico shares drive higher

First-half results to 30 June

• Revenues up 5.4% to £1.65 billion
• Adjusted operating profit up 24% to £71 million
• Report pre-tax loss of £1.5 million, improved from a loss of £42 million
• No interim dividend payment
• Net debt of £988 million, up from £908 million

Guidance:

• Continues to expect full-year adjusted operating profit of between £185 to £205 million, potentially up from £169 million during 2023

Chief executive Ignacio Garat said:“Mobico has delivered a good performance in the first half of 2024, with continuing positive passenger demand and revenue growth. ALSA [coaches] has delivered record H1 results, underpinning the overall growth of the group. We have retained, won and successfully mobilised significant new business across different parts of the group and our cost-reduction initiatives have delivered savings slightly earlier than expected.”

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ii round-up:

Transport operator Mobico Group (LSE:MCG) today detailed increased passenger numbers and revenues as it announced the start of the process to sell its North American school bus business. 

Passenger growth of 18% for its Spanish ALSA coach division helped overall group revenues up 5.4% to £1.65 billion, taking first-half adjusted operating profit up almost a quarter to £71 million. The bus, coach and rail operator continues to expect full-year adjusted operating profit of between £185 to £205 million, potentially up from £169 million during 2023. The proposed sale of the North American business is aimed at reducing group net debt of close to £1 billion.

Shares for the former National Express group rose 12% in UK trading having come into these latest results down by close to a third year-to-date. That compares to a 9% fall for UK bus and rail operator FirstGroup (LSE:FGP). The FTSE All-Share index is up 7% during 2024. 

Mobico operates more than 27,000 vehicles across brands including National Express in the UK, ALSA coaches in Spain, yellow school bus provision in the US, and the Rhine-Münster train express in Germany. 

Increased fares and a continued cost-saving programme fed into the improved adjusted operating profit performance during the period. Savings of around £30 million are expected over the current full year. 

No interim dividend payment contrasts with the 1.7p per share declared this time last year. A reported pre-tax loss of £1.5 million, and including restructuring and other costs of £16 million, improved from a loss of £42 million in the first half of 2023.

A third-quarter trading update may be announced mid-to-late October.  

ii view:

Coming to the stock market in 1992, the former National Express Group today employs over 45,000 people. Mobico operates in more than 50 key cities across more than 10 countries. Adjusted operating profit of £82.5 million for its ALSA business accounted for most of its profits during this latest period, with profits for the up-for-sale North American division coming in at £21.4 million. Losses for both the UK and German rail divisions and other group costs left overall adjusted operating profit at £71 million.   

For investors, group net debt of £988 million compares to a stock market value of around £400 million. The planned sale of the North American business will reduce diversity. Local bus services in the UK and German rail services are subject to regulatory rules and changes. More flexible working-from-home options in the wake of the pandemic warrant consideration, as do volatile fuel costs and industry-wide staff relations.   

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To the upside, a focus on reducing debt persists, potentially aided by the hoped-for sale of the North American business. Diversity of both transport type and geographical location exist. Costs are being attacked, while a move to zero-emissions vehicles across its fleets is ongoing.

In all, and while the perceived environmental benefits of public transport offer grounds for longer-term optimism, more cautious investors are likely to await a reduction in group net debt before taking any interest. 

Positives: 

• Positive environmental benefits
• Focus on costs

Negatives:

• High net debt
• Subject to government regulation

The average rating of stock market analysts:

Buy