Venture: Mid-Cap Industrial
Issue 14;
Value on wheels.
Mobico (MCG)
Mobico is a leading, international shared mobility provider with bus, coach and rail services in the UK, North America, continental Europe, North Africa and the Middle East.
“Our vision is to be the world’s premier shared mobility operator. Our purpose is to lead the modal shift from cars to mass transit.”
That translates to “we operate trains and buses”.
Formerly called National Express, MCG was slammed by the pandemic. They did a placing in May 2020, raising £234 million, which kept them afloat. Their operations are 81% overseas in places such as Germany, Spain, the USA, and Portugal. In 2020, sales collapsed, but they are recovering. In contrast, the valuation has collapsed, as the market had become concerned about their ability to service debt.
Mobico Is Historically Cheap
MCG had a weak trading statement in October. Sales were up 10%, but the market was looking for more. They also reported higher costs, mainly fuel and wages. I would point out that oil and electricity prices are much softer, which should help. They are also selling the US school bus division, which will reduce debt, and cutting the dividend. These actions will accelerate their balance sheet recovery, which I see as a prudent move which is their primary focus.
Their £1.781 billion of debt is the issue here, but the company holds £356 million of cash and doesn’t need refinancing for a long time. The equity and debt analysts are in disagreement as 9 of 9 equity analysts are buyers with a price target of 115p (BNP are at 200p). Yet the debt analysts at Moody’s recently downgraded MCG bonds to negative. This is why the shares are so weak.
The company insiders have been buying enthusiastically for two years, which is encouraging, and the usual value investors are on the shareholder register.
Risk
This is a simple business with a weak balance sheet. The shares are undoubtedly undervalued, but the market is clearly concerned that it doesn’t have many choices. Hence the sale of US school buses and cutting the dividend to boost the balance sheet. If interest rates have peaked and energy prices stay lower for longer, the recovery could happen more quickly than expected. It’s a binary situation. Either the shares double, treble, or more, or it fails. Mobico is high-risk.
Venture Update
IP Group announced a share buyback, which was well received.
Please let me know your thoughts by emailing me at charlie.morris@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
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