What can investors expect from National Express’ purchase of Stagecoach?

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 What can investors expect from National Express’ purchase of Stagecoach?
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Highlights

  • National Express Group intends to purchase Stagecoach Group. The deal would result in the formation of the UK’s biggest transport group, as the industry witnesses the transition to electric vehicles.
  • With increasing vaccination rates and the lifting of COVID-19 related restrictions, the public transportation system in the country is slowly getting back on track.

The Covid-19 pandemic had a huge impact on the public transport system in the UK. Implementation of social distancing measures and restrictions on movement resulted in only limited operations or temporary suspension of all means of public transportation to prevent the spread of infection. With increasing vaccination rates and the lifting of COVID-19 related restrictions, the public transportation system in the country is slowly getting back on track.

Several national campaigns are also being launched by Campaign for Better Transport to get people back on-board public transport. Another campaign, The Way Forward, is aimed at actively encouraging people to use trains, buses, trams, and coaches as restrictions ease and incentive schemes are launched to boost passenger numbers. Let us discuss the case of National Express Group, which intends to acquire its rival bus and coach operator, Stagecoach.

National Express (NEX) & Stagecoach (SGC): One year return and market cap

(Data source: Refinitiv)

National Express Group Plc (LON: NEX) is a public transport company that operates coach, bus, tram and train services. The company intends to purchase the rival bus operator Stagecoach Group. The deal would result in the formation of the UK’s biggest transport group, as the industry witnesses the transition to electric vehicles.

National Express Group’s revenue for the H1 ended 30 June 2021 was £0.99 billion compared to £1.03 billion, representing a decline of 3.8% year-on-year. The group’s EBITDA rose by 45.2% year-on-year to £128.2 million in H1 2021 compared to £88.3 million in H1 2020. It recorded an underlying profit before tax of £0.1 million in H1 2021 compared to a loss before tax of £60.7 million in H1 2020.

The shares of the company are currently trading at GBX 232.00, up by 0.09% at 10:37 AM GMT+1 on Friday 15 October 2021. The market cap of the company is £1,423.45 million. In the last one year, the shares of National Express Group gave a return of 54.08% to shareholders.

Stagecoach Group Plc (LON: SGC) is a Scotland-based transport company that operates express coaches, buses, and tram services. For the week ended 2 October 2021, the company’s journey numbers were 70.1%, concessionary journey numbers were 60.2%, and fare-paying journey numbers were 74.4% of 2019 figures.

For the year ended 1 May 2021, Stagecoach’s operating profit was £48.1 million compared to £119.7 million in the previous year. The company’s revenue for the period was £928.2 million compared to £1,417.6 million in 2020.

The shares of the company are currently trading at GBX 81.20, down by 0.43% at 11:05 AM GMT+1 on Friday 15 October 2021. The market cap of the company is £449.24 million. In the last one year, the shares of Stagecoach Group gave a return of 113.35% to shareholders.

The consolidation of the two businesses would result in a single largest bus, coach operator with a fleet of 36,000 vehicles. The merger of the two would offer cost savings as well as synergies of scale after going through the vagaries of the pandemic. It could be a win-win situation for shareholders too, with considerable growth expected in future from the combined entity.

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