National Express: Deep-Dive Analysis

Summary

  • Operational management is highly competent, driving leading margins across the sector which will support the business as re-opening occurs through June.
  • RMS Platform continues to deliver by way of increased margins due to demand based pricing and ultra-fast reactivity.
  • Debt is a substantial burden caused by over expansion and specifically, acquisitions, somewhat offset by recent financing activities.
  • Macro conditions are highly favourable over the next five years, with projections indicating a 17.8% CAGR.

Investment Thesis

The investment thesis here is simple: competent management leveraging operational team excellence, while adding value through corporate activities (think branding, tech stack and contract wins). The upside is a downtrodden share price providing a favourable entry point to a leading participant in the sector.

Looking forward, dividends will once again become substantial and growth stable, supported by a strong macro environment. However, growth at lower rates than historic metrics suggest is likely, as balance sheet strength is favoured to continuous acquisitions of smaller firms.

Brief History

This is one of the first articles published here on SA about British based National Express (OTC:NXPGY) (OTC:NXPGF) (LON: NEX), so we will kick this off with a brief introduction on the company and its history.

National Express is a public transport company running an almost exclusively buss and coach-based fleet. The primary geographic areas here include the US and the UK. It has further operations across Canada, Spain, Portugal, Malta, Germany, Bahrain and most recently Morocco, which we will come back to later. Furthermore, the group runs a set of train services across the German state of North Rhine-Westphalia, but successfully exited the UK rail market in 2017. For readers interested, this wiki page is recommend for further background reading on the history of the group.

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