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Mobico Group PLC (LSE:MCG) has announced the sale of its US school bus division, a move that underscores its current undervaluation, according to analysis from Jefferies. The sale is expected to bring significant benefits, as strong pricing for US school bus contracts—up by 10.2%—bolsters interest in the asset and enhances its potential valuation. Even under conservative valuation assumptions, the proceeds from the sale are anticipated to make a substantial reduction in the company’s debt.
Jefferies highlights that the interim results were noteworthy for not including any downward revisions to the com pany's financial guidance, which supports their valuation assessment. The bank estimates the fair value of Mobico, excluding the US school bus business, at 190p per share. Jefferies maintains a target price of 80p based on the current valuation of the company.
Conversely, Peel Hunt expresses some reservations about whether the proceeds from the school bus sale will be sufficient to reduce the company’s nearly £1 billion in debt to the extent required. Nonetheless, Peel Hunt acknowledges the positive impact of an additional £25 million in net debt reduction initiatives recently identified by Mobico. This unexpected reduction in debt is seen as a favorable development for the company's financial health.
Peel Hunt also notes that a potential decrease in interest rates could further enhance the debt reduction process, providing additional financial relief for Mobico. This could help the company manage its debt more effectively and improve its overall financial stability.
Overall, while the sale of the US school bus division represents a significant step in addressing Mobico’s debt and improving its valuation, the impact of the sale on the company’s long-term financial health remains a point of cautious optimism. The market response and future financial developments will be closely watched to assess the full implications of this strategic move.
