Mobico: National Express owner revs up a gear as shares rebound on Cosmen family backing
National Express owner Mobico Group may finally be turning a corner after a year to forget.
Shares hit record lows in 2023, with an October profit warning sending the transport operator spiralling to the bottom of the FTSE 250.
Inflation and the removal of Covid-era government funding have proved a nasty cocktail for the firm, which rebranded to Mobico last summer in a bid to reflect its push into international markets.
The rebranding sparked little interest from investors, who were far more concerned with a £1.2bn debt pile and the impact of bus strikes in the UK. Its share price obliged by falling 50 per cent by Autumn.
Hampered by a driver shorage and high costs, Mobico also revealed it was looking to offload its North American school bus business.
Turnaround time?
But New Year has brought a sudden turnaround in the company’s fortunes. Shares are up 30 per cent over the last month after the Cosmen family, the powerful Spanish transport dynasty and Mobico’s largest shareholder, upped their stake from 12 to 20.4 per cent in December.
This was coupled with an investment from Azvalor Asset Management, also based in Spain, who purchased an additional 3 per cent shareholding.
The Cosmen family now holds its largest stake in the group in almost two decades, and this is the first time its holding has exceeded 20 per cent, according to FactSet. The family first became involved with Mobico in 2005 after it sold the Madrid-based bus operator Alsa to the company for £149m.
It’s a much needed boost after such a torrid year and comes just as the operator commences the disposal process of the troubled North American segment, which analysts have said will be critical in getting a handle on costs and paying down debts.
Jefferies backed the firm with a ‘Buy’ rating this morning. Analysts said “such a significant stake increase from a long-standing shareholder with extensive setor experience” was a “positive endorsement.”
Azvalor prides itself on investing in good businesses that offer sustainable competitive advantages over time and the company clearly sees further potential in Mobico, particularly given how low the share price dropped last year
Susannah Streeter
They added: “In our view, the impending disposal should prove a material positive catalyst, kickstarting a debt-to-equity value transfer.” It also serves as a reminder of a historical appetite for takeovers in the sector, with five approaches for UK-listed transport groups since 2022.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, told City A.M. there had been a “flurry of interest in Mobico” after the Cosmen’s and Azvalor took an extra slice.
“Azvalor prides itself on investing in good businesses that offer sustainable competitive advantages over time and the company clearly sees further potential in Mobico, particularly given how low the share price dropped last year.”
The shareholder backing also arrives as a number of headwinds battering Mobico begin to subside. “Although the labour market remains resilient, pay growth has been slowing, which will ease cost pressures on Mobico,” Streeter noted, referring to the high costs inccurred in training up new bus drivers amid the US shortage.
Should the North American sale be successful, “the group would still have geographical diversification across Europe, with a particularly strong presence in Spain.”
Demand in the UK and Europe has remained resilient in spite of the troubling macroeconomic backdrop. Momentum is solid in Mobico’s Spanish long haul business Alsa, which held strong last year and saw passsenger numbers rise 29 per cent in the last trading update.
Could the dividend return?
What would really get investors interested is if the company decides to reinstate its dividend, which was axed in October.
Keith Bowman, investment analyst at Interactive Investor, said: “Looking forward, and with full-year 2023 results likely to be announced in March, management’s success at cutting costs and reducing borrowings will be closely watched. Following its previous decision to suspend the dividend, any updates regarding its potential return are also awaited.”
“For now, this transport operator has much to prove. That said, a more than 30 per cent jump in the share price over the last month suggests optimism among some investors persists, with City opinion still generally favourable.”
It’s still a long way to go for the firm, and shares remain 80 per cent of pre-pandemic levels. A recovery to the days before Covid-19 wiped out passenger numbers would be the real benchmark for success.