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
Venture is issued by ByteTree Asset Management Ltd, an appointed representative of Strata Global which is authorised and regulated by the Financial Conduct Authority. ByteTree Asset Management is a wholly owned subsidiary of CryptoComposite Ltd.
General - Your capital is at risk when you invest, never risk more than you can afford to lose. Past performance and forecasts are not reliable indicators of future results. Bid/offer spreads, commissions, fees and other charges can reduce returns from investments. There is no guarantee dividends will be paid. Overseas shares - Some recommendations may be denominated in a currency other than sterling. The return from these may increase or decrease as a result of currency fluctuations. Any dividends will be taxed at source in the country of issue.
Funds - Fund performance relies on the performance of the underlying investments, and there is counterparty default risk which could result in a loss not represented by the underlying investment. Exchange Traded Funds (ETFs) with derivative exposure (leveraged or inverted ETFs) are highly speculative and are not suitable for risk-averse investors.
Bonds - Investing in bonds carries interest rate risk. A bondholder has committed to receiving a fixed rate of return for a fixed period. If the market interest rate rises from the date of the bond's purchase, the bond's price will fall. There is also the risk that the bond issuer could default on their obligations to pay interest as scheduled, or to repay capital at the maturity of the bond.
Taxation - Profits from investments, and any profits from converting cryptocurrency back into fiat currency is subject to capital gains tax. Tax treatment depends on individual circumstances and may be subject to change.
Investment Director: Charlie Morris. Editors or contributors may have an interest in recommendations. Information and opinions expressed do not necessarily reflect the views of other editors/contributors of CryptoComposite Ltd. ByteTree Asset Management (FRN 933150) is an Appointed Representative of Strata Global Ltd (FRN 563834), which is regulated by the Financial Conduct Authority. https://register.fca.org.uk/
© 2024 Crypto Composite Ltd
