National Express Group to give up franchises??

[Mojo]

National Express may seek fresh capital

From The Telegraph - 10 February

In note on the transport sector, JP Morgan analyst Damian Brewer suggested the company might have to go cap-in-hand to investors for new capital if profits from rail operations are hit as the slowdown means less people travel by train and the credit markets remain frozen.

Mr Brewer said: "Our analysis suggests that there might be a growing chance that National Express might require either a dividend cut (to nil) as well as further equity".

To avoid a covenant breach this autumn, Mr Brewer suggests the company may need to raise £335m. "At a 40pc discount to the current share price, this scenario would suggest up to 166m new shares would need to be issued," he wrote. Mr Brewer downgraded National Express, which is hunting for a new chairman following the resignation of David Ross, from "overweight" to "neutral". The shares lost 37 to 308p.

The rest of the sector was also hit. FirstGroup retreated 5 to 290p and Stagecoach fell 7¼ to 130½p despite Mr Brewer's move to upgrade both companies to "overweight".

 

[Metroland]

I just wonder what their analysis counts for, no commercial information is available publicly, by law, apart from annual accounts logged at companies house. All the rest is speculation, and the usual witchcraft and number massaging done by analysts and economists who can prove anything on paper and often don't have the technical knowledge. Somewhat proved today when leading bankers admitted they had no formal banking qualifications and one was even completely perplexed by what was going on in his own industry. I'd apply myself, but obviously don't know the right people or went to right school.

 

[Royston Vasey]

I just wonder what their analysis counts for, no commercial information is available publicly, by law, apart from annual accounts logged at companies house. All the rest is speculation, and the usual witchcraft and number massaging done by analysts and economists who can prove anything on paper and often don't have the technical knowledge. Somewhat proved today when leading bankers admitted they had no formal banking qualifications and one was even completely perplexed by what was going on in his own industry. I'd apply myself, but obviously don't know the right people or went to right school.

Hey I'm an analyst, careful! Not a company analyst though, before you ask! I know my way around a set of accounts though and have scanned through National Express's here - as a plc full accounts are available, the last half-yearly report being 6 months ago and available at this link. Analysts will break these down and make forecasts on different aspects of their cashflow, costs etc in mathematical models, then look at how that affects the headline figures.

I'd remain concerned for them for a few reasons. Their share price has fallen 75% since a year ago, their net debt has increased by £600m to over £1bn between June 07 and June 08, and that was before the downturn really hit us. At market capital of £470m, their net gearing (debt to equity ratio) is over 200%, which is unhealthy and tends to lead to exactly the dividend cuts and need for financing the analyst talks of.

Nevertheless with ongoing income such as passenger fares this debt is servicable, but does leave them vulnerable if cash flow should dip - one reason may be a sharp dip in said passenger fares. The analyst in question has obviously looked at the likelihood of falling cash flow and the premium payments due, currently £85m per year and will rise to £395m by 2015 according to this link. This is a big chunk of their overall group turnover, £1.4bn last year (and that may fall this year).

I wouldn't at all be surprised if the analyst was correct. Sometimes one can have too much technical knowledge and can lose sight of the bottom line. JP Morgan are not stupid and have long experience of economic cycles and I'm sure have very sound reasoning. I would tend to trust their judgement. Lord Adonis on the other hand, is a politician and I wouldn't believe a word he says.

My opinion is they aren't going to go out of business but a lot will depend on how long this downturn lasts, and I'm not an expert. As a global diversified business though, they can absorb some pain in some parts of their business.

Other financials for interest here

 

[Metroland]

Whatever anyone says, nevertheless, its not science, its for the most part speculation because most of it is based on extrapolation. You can look at past trends and apply them to future models, but for the most part they are much too simplistic and anyone who argues any different is fooling themselves. Mathematics is the most exact science all the rest have elements of bull**** or guesswork, with economics somewhere near the bottom. If that wasn't true, we wouldn't be in this mess.

I'm not really interested in who is right or wrong (the truth is nobody knows, but the current situation is fine, sans the debt levels) but I do remain concerned about rampant speculation (which only makes things worse - especially in the age of the internet when money and information can be moved very quickly) and forthcoming job losses across all industries and social groups that is going to affect all of us.

 

[Mojo]

National Express to sell London bus operations?

Reuters: http://uk.reuters.com/article/domesticNews/idUKTRE51E19P20090215?feedType=RSS&feedName=domesticNews

LONDON (Reuters) - Transport operator National Express held talks to sell its London bus operations to Singapore's Comfort DelGro, the Sunday Telegraph said, citing sources close to the talks.

Comfort DelGro, which describes itself as the world's second largest land transport company, is already the operator of the Metroline bus network, which runs around 14 percent of London's buses.

The newspaper said the Singaporean company was understood to have approached National Express about a deal that would value the unit at around 50 million pounds. The talks were discontinued in recent weeks but could be revived as part of a review of National Express assets, it said.

A spokeswoman for National Express said the company did not comment on market rumour.

 

[Pumbaa]

Oh brilliant! NX seem to want to... urm.. trim themselves don't they? Buses, ticket offices, catering... Oh, and looking likely to issue more stock! They're not in trouble at all are they...

 

[djw1981]

Mojo, thats very selective quoting [by the Maily Torygraph]of what JP Morgan say though....

'[if the bad news is priced into NX's figures] then the stock might be a high risk, high reward stock' and 'NXEC could be able to renegotiate the ICEC rail contract froma position of strength'

JPMorgan also state that their report has extreme and unprecedented scenarios built into the analysis.

Thus the media have adopted the 'worst' picture given by JP Morgan purely for lurid headlines and headlines. Plus ca change.
--- old post above --- --- new post below ---

Oh brilliant! NX seem to want to... urm.. trim themselves don't they? Buses, ticket offices, catering... Oh, and looking likely to issue more stock! They're not in trouble at all are they...

All businesses need capital. Capital comes from issuing shares or bank borrowing. as we all know bank borrowing is not forthcoming at the moment, so a stock offering seems a good idea I guess.

A recession is a good time to have extra capital available, because as other companies go under there are bargains to be had. Cutting costs will also help to help keep the bottom line up.

 

[Royston Vasey]

JPMorgan also state that their report has extreme and unprecedented scenarios built into the analysis.

Fair point, but lots of extreme and unprecedented things are happening right now.

All businesses need capital. Capital comes from issuing shares or bank borrowing. as we all know bank borrowing is not forthcoming at the moment, so a stock offering seems a good idea I guess.

A recession is a good time to have extra capital available, because as other companies go under there are bargains to be had. Cutting costs will also help to help keep the bottom line up.

Yes, there's the rub. Most businesses are cutting back now to avoid worse pain to come and ride this thing out, I suspect this is all NX Group are doing. Every business needs a kick up the arse occasionally to streamline and rationalise. Not that I think everything is rosy in NX, as I said above; the figures don't support that. However this sounds to me like them taking sensible precautions and becoming leaner in these extraordinary times. The East Coast franchise is and will remain a prize asset, there's no way they'll let it go, despite the huge outlay. They will make it work.

 

[Metroland]

The pressure on rail firms will be highlighted this week when National Express, one of Britain’s largest bus and rail groups, is expected to cut or scrap dividend payments to shareholders.

Analysts have put the spotlight on National Express’s level of debt, suggesting that a refinancing or rights issue is inevitable. The company, led by chief executive Richard Bowker, is not expected to announce either this week, but is likely to cut capital spending along with the dividend. Its shares closed at 249p last week, having lost three-quarters of their value in the past year.

One of three candidates to become the company’s new chairman is Sir James Crosby, who quit as deputy chairman of the Financial Services Authority this month after a whistleblower claimed that he had ignored warnings about aggressive lending at HBOS when he was chief executive of the bank.

http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5780328.ece

 

[Flyboy]

One of three candidates to become the company’s new chairman is Sir James Crosby

You have got to be kidding! :roll: The guy should do the UK a favour and retire early, live a very quiet life in Harrogate and stay the heck away from any business of any kind, big or small!!!

 

[Metroland]

Lord Adonis, the rail minister, will today tell the Commons Transport Select Committee that fares will fall in actual terms next January if, as is widely predicted, the RPI is negative this July. The July RPI figure is used to determine the following January’s fare changes.

Last month the big drop in mortgage costs pushed RPI down to 0.1 per cent, the lowest since 1960. Leading economists predict that by July RPI will be between minus 2 and minus 3 per cent, which would mean fares falling by 1 or 2 per cent. The cost of the average annual season ticket for journeys of 11 to 25 miles, currently £1,972, would fall by either £20 or £40.

Lord Adonis will tell the committee that train companies have made strong profits under the formula during boom years and cannot expect the rules to be changed in a recession. He will also argue that deflation will lower the companies’ costs: the fees they pay for their franchises and track access are index linked.

Rail passenger numbers are still growing, but at a much slower rate than the companies predicted when they bid for their franchises.

National Express is thought to be in serious difficulty after agreeing to pay the Government £1.4billion for its East Coast franchise on the assumption that revenue would increase by 10 per cent a year.

Lord Adonis has reminded rail bosses that if they default on payments for one franchise the parent company will have to surrender control of all its franchises.

http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article5799500.ece

 

[jon0844]

Does this mean NXEA can subsidise NXEC? Is that allowed?

 

[Failed Unit]

Does this mean NXEA can subsidise NXEC? Is that allowed?

It is in the sense that they are all under the same group, but you could equally argue that the coach division could subsidise the rail division as well. I am sure in days gone by under First, Great Eastern and Great Western subsidised the regional franchise (North West)

 

[CEXN]

Does this mean NXEA can subsidise NXEC? Is that allowed?

NXEC doesn't need subsidy, it is making profits. Unfortunately it's not making enough profit to pay towards the franchise AND dividends for it's shareholders!

 

[Metroland]

The speculation can stop now, they have released the preliminary results and shares are up, currently around 8%.

• Continuing revenue up 5.9% to £2,767.0 million (2007: £2,612.3m)
• Normalised operating margin improved to 9.2% (2007: 8.1%), excluding discontinued operations
• Normalised profit before tax up 9.7% to £194.1 million (2007: £177.0m)
• Strong performance in delivery of Rail franchises in 2008, including meeting all first year commitments for East Coast
• Rail business expected to remain profitable in 2009, despite recessionary environment, through delivery of revenue and cost initiatives in East Coast and revenue support in East Anglia

“While much of our business is less sensitive to economic recession, the rail industry faces challenging conditions, given the large number of rail franchises that were agreed in a very different economic climate.

Constructive discussions are ongoing with Government on a wide range of issues relating to the outlook for UK rail. Notwithstanding this, we have plans in place to reduce costs in order to deliver a profitable rail business."

http://www.nationalexpressgroup.com/nx1/media/news/corp_news/pr2009/2009-02-26/2009-02-26.pdf

http://www.nationalexpressgroup.com/nx1/investor/presentations/2008/prelims08/prelims08_slides.pdf

GROWTH in passenger travel on Britain’s railways has fallen to its lowest rate for five years — and in London and the South East it has fallen to zero.

Growth in passenger kilometers traveled on inter-city and regional services fell below five per cent in the third quarter.

And there was a small fall in the number of passenger journeys – down 0.3 per cent on the same quarter last year, compared with a 6.5 per cent increase the year before.

The figures are given in the National Rail Review monitor covering the third quarter of 2008-09 (October - December 2008 ) published by the Office of Rail Regulation.

Bill Emery, ORR chief executive said: “While our figures show the growth in passenger numbers is slowing, together with a small reduction in the number of passenger journeys, there has not yet been the significant reductions in rail travel that some have expected.”

He added: “The mainline railway is not immune from the recession and rail freight is taking the brunt of this.”

The ORR says train punctuality continued to improve. “We welcome the continuing good news from the mainline railway. The train operators and Network Rail are delivering the highest levels of train punctuality and passenger satisfaction we have seen in years,” said Bill Emery.

He said Network Rail must now “deliver substantial enhancements to its network as well as contributing in a major way to further improvements in performance and safety, and continue to expand network capacity, all while steadily improving its efficiency.

“The enhancements include major schemes such as Thameslink, capacity enhancements at Reading, and the Glasgow Airport rail link.

“Network Rail will be publishing the first part its five-year delivery plan at the end of February with the second part due by the end of March, and this will set out its commitments and plans for its customers and all users of the railway. 


“We will be holding Network Rail and its industry partners to deliver on these commitments and as we set out in our own strategy, we see this as one of our key roles for the next five years.”

http://www.railnews.co.uk/news/business/2009/02/26-national-rail-review.html

http://www.rail-reg.gov.uk/upload/pdf/rolling-c1-railusage.pdf

 

[blacknight]

It should not be the case of National Express be allowed to give up franchises, more a case of the Government taking back into the state care & ownership the nations railways before National Express & the rest get the chance to inflict more carnage on Britains railways.
From Mr Bowker own lips we have it that they are not interested in providing a service to passengers Just saving the companies, prove me wrong by maintaining present service stands as regards to catering & ticket office hours which are next in line for pruning.
Fact ECML is turning a profit just not enough money for National Express to meet next years 146 million premium for the sake of this country I say go now for its better by far to preserve the service standard for passengers than National Express to be allowed to pare to the bone what was once Britains premier line:-x.