National Express accelerates after profits jump 15%

National Express accelerates after profits jump 15%

Transport group recovers after a difficult first half and upbeat about full year expectations

National Express has accelerated more than 3% after a better than expected update.

The transport groups shares have moved 7.8p ahead to 243p, making it the biggest riser in the FTSE 250. After a difficult first half due to one offs and currency translation, it said third quarter profit was up nearly 15% on the same time last year. This was due to revenue growth, improvements in performance and cost efficiences.

[This is a] cheap stock – although the headline commentary is that the group is in line with full year expectations, third quarter pretax profit up almost 15% is an eye-catching performance (both revenue and cost driven). On our 2014 full year forecasts, the shares yield 4.4%.

Third quarterprofit before tax is said to be ahead 15% against a 9% decline in the first half and our full year estimates of a modest decline. The group has delivered a good performance with revenue and passenger volumes ahead in all divisions. In US School Bus underlying revenue increased 3% aided by new contract wins, organic growth and favourable contract renewals. In Spain, domestic passenger volume was ahead by 1% reversing previous trends. In UK Bus, commercial revenue increased by 4% with passenger volumes ahead by 1%, whilst UK Coach has delivered further progress with passenger volumes ahead by 2%. The group is said to be on target to meet our profit and cash expectations for the full year.

National Express delivered a solid update today and is on track to meet its profit forecasts and cash generation expectations for the year (free cash flow of around£150m in 2014). Todays news should see a modest relief rally. The stock looks relatively cheap in a sector context (at a 2014 full year PE of around 11 times) although, in the absence of new catalysts, we maintain our hold.

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Source: Guardian Transport