Analysts downgrade National Express following margin pressures
Analysts at Peel Hunt have downgraded National Express’s ratings from Buy to Hold after the company said keeping prices affordable will slow its margin recovery.
Peel Hunt have also cut National Express’s earnings per share forecasts by around 20 per cent.
“This is clearly disappointing, but the medium-term targets remain in place and the group can de-lever to c.2x net debt/EBITDA over the next two years and reintroduce a dividend,” the note read.
“Our target price falls from 335p to 270p and we downgrade from Buy to Hold.”
Following the downgrade, the coach operator’s shares went down by 6.61 per cent to 228.80p.
National Express yesterday reiterated its expectation for an average profit margin of nine per cent until 2027, with recovery reaching pre-pandemic margin levels of around 10 per cent in the later end of the period.
Revenue recovery is also expected to lag behind with margins at 7 per cent, lower than its target average.
The group argued that margin recovery would be held back by its decision to keep prices affordable while demand soars. The pace of recovery was also constrained by “unprecedented” levels of wage inflation among school bus drivers in the US.
National Express made the headlines earlier this year when its takeover bid was snubbed in favour of German asset manager DWS Infrastructure, Morning Wire reported.
The operator was forced to announce the Stagecoach takeover bid had lapsed after DWS Infrastructure’s £594.9m cash offer was declared unconditional on 20 May as shareholders accounting for 66 per cent of Stagecoach’s shares agreed to the takeover.