Who would have thought that I would be profiling a company that runs public transport in these Covid-19 hit times?
However, I do think that the shares of this £400m local transport company are ready for a lift-up.
The Perth-based Stagecoach Group (LON:SGC), founded by big charitable donors Sir Brian Souter and his sister Ann Gloag, last week announced its interim results for the period to end October.
One the biggest UK bus operators
The UK bus industry supports around 250,000 jobs, as well as thousands of others in bus manufacturing and support services. In total, there are around 32,000 buses in service in the UK.
Stagecoach, which started in business over 40 years ago, is today one of the biggest UK bus operators, running 8,500 buses and employing around 25,000 people across the country. In normal non-virus hit days round 3m people travel on the group’s buses every day.
Over 66% of travellers use buses – in good times
Information from the group tells us that buses are key to the country's transport system and carry around two-thirds of all passengers using public transport – which is around four times the number of people who use trains.
Public transport has a strong future as governments tackle the twin challenges of road congestion and climate change. The group’s core business is the local transport markets which have critical mass.
Stagecoach has a good team running the business
It has a strong management team with a proven track record in delivering good value, sustainable and innovative transport services.
Stagecoach has a balanced portfolio of deregulated and contracted bus businesses in the UK.
It operates on a network stretching from south-west England to the Highlands and Islands of Scotland, and includes major city bus operations in London, Liverpool, Newcastle, Hull, Manchester, Oxford, Sheffield and Cambridge.
As a matter of interest, in London the group operates around 13% of the scheduled bus network on behalf of Transport for London.
The group is also a major tram operator, running an 18-mile Supertram system in Sheffield.
Stagecoach operates the market-leading budget inter-city coach service megabus.com in around 90 locations in the UK.
Recognised nationally as a ‘value for money’ operator
According to independent research by Transport Focus, Stagecoach is rated higher than any other national bus operator on value for money.
The group offers heavily discounted multi-journey tickets, with easy online booking, across the UK as well as discounted tickets for students.
It is the market leader for budget inter-city coach travel. Its megabus.com services operate from around 90 locations in UK. Prices start from just £1 plus booking fee.
Its business megabus.com was launched in the UK in 2003 and revolutionised coach travel with its simple online booking system.
Recent years have seen quite a group reorganisation
The group has reorganised itself a great deal over the last few years and has cut back and divested itself of a lot of its international operations.
Way back in 2016 its total revenue was £3.87bn, upon which it made a £104.4m pre-tax profit, worth 27.7p in earnings per share.
In the year to 2 May 2020 its revenue was £1.42bn, generating just £40.6m profit, and earnings of 13.5p per share.
However, the current year sees analysts reflecting the impact of the total lockdowns on our economy – with forecasts of only £1.05bn revenues and a loss of £13.5m.
The year to end April 2022 is pencilled in as aiming for £1.2bn of sales and pre-tax profits bouncing back and higher than last year’s profits – aiming at just under £50m, worth 8.25p per share in earnings and anticipating a 2.5p per share dividend.
At the current 74.5p those estimates for 2022 put the shares out on a prospective 9
times earnings and with a healthy yield.
Very, very strong as a cash generative business
Now this is important - I must highlight that the group, valued at just £400m, had cash balances of £437.7m as at 7 October, add that together with its undrawn by committed banking facilities of £406.4m, less £98.5m of train operating liabilities, and you will recognise its undervalued strength.
Shares are now 80% lower than five years ago
Today its shares are trading at just 74.5p each, just over 5 years ago they were trading at 405p. They have been down to 32.5p at their lowest this year as the virus impacted the market so heavily.
In fact, they were still as low as 38p just a month ago. But since then they have come up on professional buying lists again, as others start to realise the recovery potential.
A clue as to the group’s future prospects is based around help that the UK Government has promised local governments on the continuation of practical transport systems for their areas.
Cost-cutting and future prospects
Martin Griffiths, the group’s CEO, described the ongoing effect of all the cost-cutting and money-saving measures that his team has kicked in this year, together with his view of its future prospects.
As I have noted on several recent company profiles – forget about this year and the enveloping economic hassles and just look forward to operational recoveries in 2021 and thereafter.
Offering at least a 36% upside
I see these shares as a very good runner for the next year and I suggest that patient investors should jump aboard right now.
My Target Price for 2021 is an easy 100p.
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