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21 Aug 2024, as if there was not enough to worry about, 4 weeks later than normal.
I'm try to take positives in the full yr Apr 2024 results where they said about NA:-
'The division also demonstrated good pricing power in the market in order to continue to recover the investment in driver wages made in 2022. Prices for contracts due for renewal in the current school year (approximately 40% of the portfolio) have been increased by an average an average increase of 13%. This followed price increases for approximately 40% of contracts of circa 10% in the previous year. There remains a block (circa 20%) to be re-priced in 2024, and we are confident that similar levels of price increase will be delivered. The very successful, dependable 23/24 school year start-up will certainly help support that pricing process. Mobico retained circa 97% of its School Bus customers, in an already highly competitive SY23/24 bid season, and in the context of significant price increases.'
.................................
Hopefully NA is turning a corner and the re-priced contracts will be starting to catch up/outstripping the wage rises and some normality will return.
If we only we had the benefit of hinsight 6-12 months and what Cosmens are going to do.
The problem, as you alluded to before, is the suffocation of that pillow of debt. With ZIRP now firmly out of the window, it would have to take some miraculous increase in revenue to achieve the margin required to make any significant inroads into that debt pile.
It isn’t coming so it’s either sales of assets or an RI.
And if ZIRP were to happen then it’ll accompany a global recession which MCG is dead certain to not survive.
So the share price is reflecting the speculative proposition which MCG now is.
Mule - Thats the first time Ive read your comments making any sense. Yes you are correct it is down to a sale of assets, whether NA School Bus or otherwise, or potentially a raise in 18 months. You seem to have come to grips with the fact that MCG has assets to sell, the next step is to understand that it has options of assets to sell that will wipe out its debt entirely and still have assets left over to operate and continue.
And yes the share price is reflecting the speculative nature of the what asset will sell, when and for how much. But that is a temporary state until an asset is realised.
Consider if ZUM is recently valued at $1.3B for an operation 1/6th of the size and reach of the business that MCG operates in NA then there is a lot of opportunity to reduce debt there. US Transit (WeDriveU) still available separately worth hundreds of millions more and recovering well in 2024.
UK bus stated by Fitch as also recovering in 2025.
German Rail should stabilise and may surprise to the upside with write backs following renegotiation of the contractual cost recovery and/or a recovery of provisions around £10m p.a. albeit the contract on RX lots is going to be low margin.
ALSA is producing strong profits and continuing to grow well. Fitch saying that there should be another £400m of growth just in ALSA alone over the next 3-4 years.
Cost cutting of c. £40m this year and £50m next year, along with CapEx reduction opportunities to conserve cash also recognised by Fitch. Organic growth to reduce debt is noted as going to be a struggle but not impossible and considered would take longer on its own than the stated target of 2027.
Fitch have stated that they believe MCG to most likely continue to remain investment grade over the next 3 years. That includes the specific reference to allowance for the Hybrid Bond reset date and rate.
Fitch - June 2024
DERIVATION SUMMARY
Compared with FirstGroup plc (FG, BBB/Stable) MCG is better diversified in geography with key operations across the US, the UK, Spain and Germany and has a higher share of contracted revenue, and therefore a stronger business profile.
MCG's credit profile has weakened as a result of slow recovery of profits post-pandemic. However, its EBITDAR net leverage should remain compliant with its investment-grade rating with an average of less than 4.0x over the next three years.
Fitch - June 2024
Spain's Strong Growth Potential: Strong long-haul revenue growth, benefitting from improved passenger demand, yield increase and new contracts have lifted Spain division's current run-rate revenue 40% above pre-pandemic levels. We expect this business to be a key growth driver for MCG, adding annualised revenue of around GBP400 million over the next three years. Key risks remain competition from high-speed rail, intercity concessions renewals (scheduled in 2026 with potential further delays) and wage inflation.
Fitch - June 2024
MCG's rating continues to benefit from good diversification and large scale, with a strong position in the US school bus, transit and shuttle businesses and the Spanish and UK coach and bus markets. The Stable Outlook reflects our expectation of deleveraging from 2025 and management's public commitment to the investment-grade rating. We thus believe mitigation actions will be forthcoming if business performance is weaker than expected.
MCG's plan to sell the US school bus business is not factored into Fitch's rating case due to uncertainty on its timing and sale proceeds.
The Fitch UK bus outlook seems to rely on the assumption they'll trim the unprofitable parts of network in 2025. I'm not sure if that's realistic.
The new mayor is already setting out his stall on franchising and making noises on how much the taxpayer is shelling out to subsidize NEXWM despite NEXWM actually subsidizing them to the tune of probably £20m or more since the operations lose money. So more public money is needed in any approach, no operator will take a money losing contract. Except MCG I guess (tongue in cheek). The mayor might change his tune when he actually looks at the numbers. But it looks to be an unfriendly regulatory environment.
My hope there is that if the network cannot be operated for a reasonable margin then we would do well to sell the infrastructure and assets and operate under a franchise or exit. What is the point of maintaining low margin high risk contracts. Put the money, assets, people to use elsewhere such as coach or preferably sell the UK business and invest in US School Bus / Transit (or reduce debt).
Great posts on franchising. I'm massively in favour of franchising as an mcg shareholder. I'm not in favour of it as a taxpayer!
We are shortchanged significantly in the WM. It will transition from that to being operated by local authorities, reinstatement of loss making routes and a cost plus model. Then imagine that across the whole country.
I assume that the TA won’t be as keen to take control of the transport once they’ve figured out the cost of doing so. MCG is I’m sure fully aware that the old model is now broken and a cost plus is the way to go or other such mechanisms that protect them from inflationary pressures.
Just get it binned
The cnts will soon come crying back to Mobico then
Sick of getting rodded
This really is a hopeless cause right now, cannot get a decent uplift.
JG - my thoughts are that the belief, hopes and trust have firmly gone now and we are at the stage where no one is buying in to a story of recovery until solid news confirms it. So its going to drift until its underpinned by something to drive buyers back in to a recovery. Looks like a bit of a wait now until end Aug.
P.s. I think the misery will end, one way or another, in the next 6-9 months. Not too long now.
Having a baby is easier than this share :-)
My take is wait until the UK CPI data tomorrow and then the narrative from the BoE. The consensus is 2%. If it hits the 2% then there's a fair chance we will see a interest rate drop in the next few month which should positively rerate here. Likely undo some of the damage the US CPI and Fed narrative caused.
I read the cost plus model being bandied about but there is always a danger using this that you are just not pricing in line with market expectations, especially if your plum of a CEO agrees massive future wage increases whilst official data shows inflation under control. Not saying you're wrong or anything, it just can be very nuanced.
Been away a few days, nice to have a break from this disappointing share. Why is everyone apart from the Mule getting their knickers in a twist ???
Cosmens just bought another 1% !! They know a lot more than us. Good chance we might hit 40p but patience is a virtue !!! Hang in there for the big bounce.
https://www.cityam.com/cosmen-family-pounces-on-national-express-owners-depressed-share-price/
Smokey – Share price goes down and its panic all round and let’s be fair the donkey is purposely spreading fear with claims of it going bust and get out while you can.
I get why people are fearing, a few people here have been crushed with this stock and are reaching capitulation. Honestly being in that position is brutal, so I get it.
Poker did a decent job of explaining the FCF the other day and showing that FCF is after interest payments, and it is only the hybrid which is deducted post-FCF due to it being classed as equity rather than debt. There is room in the FCF for debt repayments to double and still have free cash to repay debt providing management aren’t using that cash for dividends or further growth investments.
Also, I believe the debt is already a mix of percentages (I recall reading it in the update but cant find it now) so it doubling is unrealistic and overly conservative.
Agreed, a Cosmen buy and 2 tiny director buys (there was one in May too) can only be positive.
Regardless - GLA
WT
I guess it's just a case of if a bottom is finally found before an endgame.
Do you think Cosmens tells Garat if he's adding, and is cosmen subject to insider trading rules with regards to European Express buying shares?
After all he's a director of Alsa isn't he?
I think it's about time IR starting doing their job, all contracts either renewed or renegotiated on improved terms, including school bids contracts, should be RNSD, however small, to try and demonstrate progress and stem the one way traffic.
No idea what this guy John Dean does, only investors adding are Cosmens, hardly a good advert for IR.
Just to add.
Cosmens between their 2 funds have circa 150 mill shares, they must be over 50 mill quid down, purely a guess I really don't know.
How are they going to recoup those losses other than like us with the SP rising?
Could it be that given their large stake and seemingly contentment at their stake losing value consistently, that they are part of the problem with regards to sp destruction?
Other investors or activists for example at WG have been far more vocal and exert much more pressure on BODS when things are consistently like this.
Just seems like this whole thing and demise has been going on for far too long now.
JG, assuming Cosmens are convinced about the longterm prospects at mobico at this price (why else would they build such a big stake), why would they prevent the market from offering them the opportunity to add at those levels by verbally intervening? I don’t see any scenario other than a healthy longterm business and higher share price that would benefit Cosmens…so assuming that they think the overall business is doing well…why would they care about whether the sp is falling or not in the short / medium term
HV
I'm just suggesting a grand effort by all parties except PIs to depress the share price.
What's to stop Cosmens lending millions of shares to shorts, telling them drive the price down as much as possible, then buying further?
Not sure if that's legal or not, or if it's just a vivid thought.
I don’t think such a successful and wealthy family would risk legal consequences…I think their actions (aggressively buying) is louder than anything they could possibly say…the family has been in the transportation business since 1728 and founded alsa in 1923…not sure there are many better experts on the business than them…
So them buying gives me confidence…and I don’t see a scenario in which they would profit from a dilution or worse bankruptcy…let me know if you or someone does pls
The other thing to add is that there's been no RNS from any large holders running for the door. They had 163m cash at end of last year ... treading water against 2022. The Q1 update showed increased revenue which should be at the conversion rate they usually maintain....it's really quite baffling how the SP has now brought the MCAP down to 0.75 times EBITDA. It's almost behaving like some event has occurred and it's going to the wall.
Given your comment @josey, I don't understand that if an event took place and the SP is declining because of that, it would be illegal due to insider training?
My thoughts are primarily it is due to an increase in shorters, but this cycle will turn once they hit their targets or any inkling of positive news.
As @Hopeless has stated, it is giving me increased confidence that an established family like Cosmens are increasing their stake here.
Or I can hope that a significant offer can come in. The CityAM article states '“We believe the increase in the family’s shareholding reflects a combination of seeking a blocking minority position to prevent a low-ball takeover offer, and taking advantage of the depressed share price,” Liberum analyst Gerald Khoo said in a note."