National Express owner, Mobico (MCG), saw its share price rise by 13% following the announcement of a formal process to sell its North American school bus business and confirmation of annual guidance. The company's robust performance in Spain, where its ALSA subsidiary delivered record first-half results, helped offset losses in the UK and Germany.
The proposed disposal of the school bus unit, which saw revenue growth of under 1% in the first half, was first announced in October 2023 as a move to help reduce debt. The process is "progressing as expected" according to management.
Deleveraging the balance sheet is a key priority for the company's long-term prospects. The substantial debt burden led to the suspension of the dividend last year, and it has not been reinstated this time, with the focus remaining on reducing leverage to a range of 1.5-2.0 times by 2027. Gearing stood at 2.8 times at the half-year mark.
Despite the debt challenges, Mobico reported a 24% increase in adjusted operating profit to £71.2 million for the first half of 2024, compared to the same period last year. This growth was largely driven by the strong performance in Spain and North America, which offset losses in the UK and Germany. The Spanish business, ALSA, achieved record results, driven by double-digit revenue growth and a 43% surge in profit across both regional and long-haul operations.
Management maintained its annual operating profit guidance of £185 million to £205 million. However, Ruairi Cullinane, analyst at RBC Capital Markets, cautioned that "reaching the midpoint of Mobico's guided range would require an unusually weighted second half of the year."
The company is aiming for £40 million in cost savings throughout the year, with the benefits of pricing actions expected to flow through in the second half.
Despite these positive developments, Mobico faces significant challenges. The share price has fallen by 85% over the past five years, reflecting a combination of issues. The company's valuation currently sits at a low five times forward consensus earnings, highlighting the ongoing difficulties.
While some positive steps are being taken, Mobico remains a complex investment case.
Key Financial Data
| Metric | Value | |---|---| | Share Price | 66p | | Market Value | £405 million | | 12-Month High | 93p | | 12-Month Low | 46p | | Dividend Yield | Nil | | PE Ratio | NA | | Net Asset Value | 167p | | Net Debt | 119% |
