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National Express moves forward on outlook and dividend hopes

Discussion in 'Market News' started by Lily, Oct 26, 2015.

  1. Lily

    Lily Forum Member

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    Analysts upgrade company but Go-Ahead goes into reverse after downgrade

    National Express has accelerated more than 3% after a couple of broker upgrades.

    Analysts at RBC have raised their recommendation from sector perform to outperform, while Liberum has moved from hold to buy.

    The surprise majority for the Conservative Party in May’s General Election has brought stability to the UK train operators. They now have an unchanged regulatory framework, with the franchise bid timetable intact.

    However, uncertainty persists for the UK regional bus operators. City devolution is a key government policy, and Sheffield has joined Manchester in gaining powers over local bus services. The extent of these powers is still to be defined. The forthcoming Buses Bill should provide clarity, but this is in consultation and a draft still awaited.

    The greatest geographic diversification amongst the UK public transport operators makes National Express the least exposed to potential changes in the UK industry structure. Recent share price weakness has made the valuation more attractive, and National Express now offers the best dividend yield in the peer group. Rolling over our sum of the parts valuation to 2016 estimated multiples lifts our target price to 340p from 300p. We upgrade to buy from hold.

    Go-Ahead’s fundamental attractions are unchanged. It is a stable, cash generative group with leading positions in key markets, underpinned by a strong balance sheet. However, the postponement of the £100m bus operating profit target, and ongoing regulatory uncertainty, also pushes back the hoped-for positive catalyst of additional cash returns to shareholders. We downgrade to hold from buy and cut our target price to 2750p from 3000p.

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