27th Jul 2023 17:00
(Alliance News) - Mobico Group PLC on Thursday pledged a strong second half of the year after interim results disappointed sending shares tumbling.
The Birmingham-based public transport provider, formerly known as National Express Group PLC, swung to a pretax loss of GBP23.4 million from a profit of GBP20.5 million a year earlier in the six months to June 30.
The sharp reverse came as rising operating costs offset revenue gains, but the firm pointed to an improved performance when taking into account its transition away from "significant" Covid-19 support.
AJ Bell's Russ Mould said: "The renamed National Express – Mobico – may be looking for another identity shift after today’s first-half numbers went down like a lead balloon."
"The transport company has been hit by the withdrawal of Covid-related support and a big increase in costs – notably on wages."
Shares fell 10% to 95.85 pence each in London on Thursday.
Revenue was up 19% to GBP1.57 billion from GBP1.32 billion, but this was offset by operating costs rising 22% to GBP1.56 billion from USD1.28 billion. Furthermore, finance costs rose 47% to GBP33.8 million from GBP23.0 million.
Liberum analyst Gerald Khoo said the results appear well short of forecast with the main areas of shortfall the UK, a GBP10.8 million operating loss versus Liberum's GBP14.9 million profit estimate, and North America, GBP13.8 million operating profit versus Liberum's GBP36.8 million forecast.
Khoo thinks the latter is particularly concerning given that seasonality means it is a first-half weighted division.
Peel Hunt agreed. "The 1H results were below our expectations, due to the timing of the removal of Covid funding and UK pay increases being applied retroactively in the UK," it said.
Nonetheless, the firm was confident of an improved second half performance. Mobico expects adjusted operating profit for 2023 in the range of GBP200 million to GBP215 million.
Chief Executive Ignacio Garat said: "Although there remain some market uncertainties, encouraging passenger growth, pricing power, continued pipeline conversion, high levels of contract retention, the actions we have taken on pricing and costs, and the ongoing successful mobilisation of contracts all support our confident full-year outlook."
Peel Hunt pointed out the guidance for 2023 underlying operating profit of GBP200-GBP215 million leaves its full-year forecast of GBP208.8 million almost exactly in the middle of the range, and is ahead of the consensus mean of GBP199 million.
"This implies much higher 2H profitability than we were assuming, and bodes well for further profit recovery in 2024," the broker commented.
Liberum's Khoo concurred, noting the guidance was above his GBP199 million estimate. "Management has acknowledged the significant H2 weighting implied by its guidance, with cost savings to mitigate inflation coming through in H2", he explained.
Liberum rates Mobico 'hold' and Peel Hunt rates the firm 'buy.'
Despite the promised second-half recovery, the City marked the shares down severely. AJ Bell's Mould likened it to "a coach which has been delayed on the first leg of its journey but promises it can make up time after a stop at Watford Gap."
But he added, "this is often a recipe for disappointment and investors will be wary of a profit warning if Mobico cannot make up the shortfall."
By Jeremy Cutler, Alliance News reporter
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