National Express (NEX) & Stagecoach (SGC) plans merger: Buy alert?

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 National Express (NEX) & Stagecoach (SGC) plans merger: Buy alert?
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Highlights 

  • Bus operators National Express and Stagecoach revealed they are in talks for a potential merger.
  • National Express and Stagecoach’s shares jumped over 7 and 20 per cent, respectively, following the news

UK’s travel sector has been deeply impacted by the pandemic. Even as restrictions have eased, the sector is expected to face a new wave of job cuts due to complicated and expensive travel rules.

According to a recent survey by industry body ABTA, over 67 per cent of its members were planning to slash their workforce due to the UK government’s restrictive holiday rules.

Let us dive deep into the stock and financial performance of two bus operator companies, National Express Group PLC and Stagecoach Group PLC, that have announced their intention of merger:

  1. National Express Group PLC (LON: NEX)

FTSE 250 listed firm National Express Group is a UK based public transport company. The diversified public transport operator reported it was in possible takeover talks with its rival bus operator Stagecoach Group PLC (LON: SGC), in an all-cash deal.

According to the key terms of the deal, National Express would own 75 per cent of the combined entity, whereas Stagecoach would own 25 per cent of the potential merged entity.

The merger is expected to create synergies by improving operational efficiencies across combined networks, boost the expansion of National Express’ businesses and see synergies in other areas.

The company was the second highest riser in the LSE’s travel and leisure index today and the highest riser on the FTSE 250 index, following the takeover news.

National Express Group share price performance

(Image Source: Refinitiv)

National Express’ shares were trading at GBX 240.20, up by 7.71 per cent on Tuesday at 10:56 AM BST. Comparatively, the FTSE 250 index was trading at 23,583.98, up by 0.78 per cent.

The company’s market cap stands at £1,369.41 million, and its one-year return is at 88.37 per cent as of 21 September.

  1. Stagecoach Group PLC (LON: SGC)

FTSE All-Share index constituent Stagecoach is a Scottish bus, express coaches and tram services transport group. According to the National Express takeover deal’s key terms, the potential combined company would have an implied premium of 18 per cent above Stagecoach’s closing share price as of 20 September.

The potential deal values Stagecoach at about £445 million. The company became the highest riser in the LSE’s travel and leisure sector today following the news.

However, both companies have stated that there is a possibility that a formal offer may not be made.

Stagecoach Group share price performance

(Image Source: Refinitiv)

Stagecoach’s shares were trading at GBX 82.25, up by 20.87 per cent on Tuesday at 11:00 AM BST. Comparatively, the FTSE All-Share index was trading at 4,027.91, up by 1.03 per cent.

The company’s market cap stands at £ 374.87 million, and its one-year return is at 86.71 per cent as of 21 September.

Bottom Line

Both National Express and Stagecoach received some government funding during the pandemic as the travel sector was severely impacted due to covid-19. However, as government support is expected to expire in the coming months, the potential merger could benefit both of the bus operators.

The National Express and Stagecoach takeover news come after a recent flurry of deal making in the bus transport sector.

Industry analysts expect a consolidation would be beneficial in the public transport industry due to several challenges being faced by the industry, such as lower passenger volumes due to the pandemic, increased capex due to adoption of climate friendly vehicles and other factors.

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