If you frequently travel and use trains, chances are that you’ve used Trainline (LSE:TRN) before. I use the app myself whenever I need to book a train ticket. Until recently, I’ve never paid that much attention to shares of the FTSE 250 company.
However, after it gave a trading update for its FY24 results yesterday (14 March), its shares rocketed by 13%.
I’ve therefore taken the time to give its shares a closer look. I like what I see and I’ll explain why below.
Robust revenue growth
Firstly, if we look at its trading update, we can see why investors have driven up its share price.
Net ticket sales grew by 22%, from £4.3bn to £5.3bn. This translated into revenue growth of 21%, from £327m to £397m.
What I like about Trainline, is its huge international potential.
I was largely unaware of its international presence until I visited some friends in France over the summer, using its platform to buy my tickets.
Although combined growth in France and Germany was stagnant over the last year at only 3%, Spain and Italy exhibited the opposite. Combined, net ticket sales in both countries were up by 43%. The route between Madrid and Barcelona is now the third most popular between all countries (including the UK).
Overall, net ticket sales in international markets grew by 14% to hit £1bn this year. This is still far off the net ticket sales generated in the UK of £3.5bn. Europe is a much larger market than the UK, therefore, I see a great growth opportunity for Trainline to take advantage of.
Also, we must not forget that UK net ticket sales grew by 23%, which is also impressive.
Risks
So far, so good. However, it’s not that simple. There are some risks that are largely out of Trainline’s hands.
The pandemic a few years ago was a great example. If something similar were to happen again, this could create significant problems for rail travel and thus Trainline.
Furthermore, it’s largely reliant on the railway companies. The UK has experienced many strikes over the last few years, which could hamper demand. Moreover, the reason why growth is a lot slower in France and Germany is because there is significantly lower carrier competition. This is important for the company because its services become less useful when there is less carrier competition.
If competition in the railway industry declines, this could jeopardise its business.
A tech success
Overall, I think that Trainline is a great company.
Its shares are quite expensive with a forward price-to-earnings ratio (P/E) of 25.7, but I think there’s a lot more to the business than meets the eye that can justify this valuation.
It’s so easy and convenient to book tickets using its app and platform. There’s no wonder that it’s Europe’s most downloaded rail app.
I’m also reminded of how society has transitioned from using physical cash to cashless transactions. I believe a similar thing could happen with train tickets. We could be entering a society where train tickets are now paperless and almost all bought online.
Trainline is in a prime position to take advantage of this shift. That’s why it’s growing so well. It’s also why I’d buy some of its shares if I had the spare cash to do so.
