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Trainline share price crashes 20%. Here’s what I’d do now

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Train travelling through countryside
Image source: Getty Images.

The Trainline (LSE:TRN) share price crashed by over 20% on Thursday after the government announced a shake-up of UK’s railways. A new state-owned body called Great British Railways (GBR) will be created to try to simplify the current system.

Great British Railways will be responsible for the infrastructure, running and planning the network, and setting fares and timetables. In a blow to the Trainline share price, GBR will also sell tickets online.

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Trainline share price at risk

Trainline is an online train ticketing business. GBR selling train tickets could force Trainline to change its business model completely.

Under the proposed reforms, GBR will also offer flexible season tickets. After the pandemic restrictions end, commuting patterns are expected to change. More people will move to hybrid ways of working with less commuting.

Even before these reforms, Trainline struggled to produce a profit. It floated on the stock market in June 2019 at 350p, and the pandemic hit less than a year later. The Trainline share price currently trades below its initial float price.

Given the shifting commuter patterns demanding more flexibility, and significant competition from GBR, I think the Trainline share price is at risk of further weakness. 

Could changing tracks help?

In its latest financial report covering the 12 months to 28 February 2021, Trainline reported net ticket sales that were 21% lower than the prior year. Looking ahead, the company noted positive signs of recovery with ticket sales increasing as lockdowns ease. The GBR announcement significantly overshadows the company’s plans and prospects now, in my opinion.

Despite the potential damage to its profitability, there are several initiatives the company could implement to aid the Trainline share price. Restructuring, cost-cutting, or a shift in business model could completely change its prospects and potentially benefit the share price.

Also, the Trainline app is popular with users. It consistently scores highly for customer satisfaction. It remains to be seen whether consumers stay loyal to the app. However, I will not be adding the shares to my portfolio.

Pedal power

In addition to shifting commuting patterns, the pandemic could affect several other industries and companies.

Sticking with the mobility theme, cycling usage increased by 22% in outer London from spring 2019 to autumn 2020. The changing patterns aren’t just restricted to London. According to the European Cyclists’ Federation (ECF), the continent’s cities spent €1bn on Covid-19-related cycling measures in 2020. The growing trend in electric bikes and scooters should also add to overall cycling demand.

One cycling retailer that could benefit is Halfords (LSE:HFD). The company, which also offers motoring services and parts reported a 60% jump in annual profit. In its last trading update in March, it said its overall business has been performing stronger than anticipated despite volatile trading.

In my opinion, Halfords shares look reasonably priced. Earnings estimates are growing, and it offers a reasonable return on equity. Furthermore, its dividend could be reinstated providing investors with some additional income.

However, there are also some risks to consider. It remains to be seen if the growing cycling trends will continue post pandemic. Greater flexibility from GBR’s new train fares could pull people back to trains. Competition from online-only retailers could also have an impact over the longer term. That said, I think the pros currently outweigh the cons. I’d consider adding some shares to my Stocks and Shares ISA.

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Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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