Down 48% in a year. Is this UK stock about to hit the buffers?

James Beard discusses whether this UK stock could be badly affected by the government’s plan to bring Britain’s rail network back under public control.

| More on:
Two mid adult women enjoying a friends reunion city break for the weekend in Newcastle upon Tyne, England.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Trainline‘s (LSE:TRN) a UK stock that sells tickets — as its name sort of suggests – mainly for rail journeys. It claims to have created Europe’s most downloaded rail app that’s used by 27m customers, including 18m in the UK.

But could the government’s intention to nationalise the rail network severely disrupt Trainline’s business? Let’s take a look.

All change

Last month, the government published a response to its consultation on the Railways Bill and the future of the industry.

Although a number of respondents had argued that the state-owned Great British Railways (GBR) should be the only retailer for tickets, the Department for Transport concluded: “We see significant value in the role of independent retailers, as they help to innovate and drive up standards for passengers“.

The report said that it would be preferable if Trainline and its competitors (including Uber) continued to operate alongside GBR in a “fair and open market”. However, of concern for Trainline’s shareholders, the government did announce plans to enable GBR to develop its own “user-friendly” website and app.

This week (9 December), I heard the boss of Trainline having to defend his company’s policy to charge a fee on advance ticket sales. Given that the group isn’t a charity and has spent millions building its own technology platform, this seems reasonable to me.

But the BBC interview did raise some questions in my mind that nobody’s in a position to answer yet. Namely, how much will GBR charge customers who want to buy a ticket? Will it want to undercut its competitors? What level of profit will the railway’s ticketing arm seek to make each year? And when is this all going to start?

A strong track record

Although it’s never a good time to find out that a new competitor is about to enter your market, the timing for Trainline is particularly unfortunate given that the business is performing well at the moment.

Compared to the same period a year earlier, during the six months to August, net ticket sales were up 8%. Operating profit was 38% higher and basic earnings per share increased by 27%.

Rising earnings and a falling share price means the company’s shares are pretty cheap at the moment. In fact, they trade on only 11.6 times adjusted earnings for the year ended 28 February. But I think this fairly reflects the uncertainty about the future of its UK business with around two-thirds of the group’s net ticket sales coming from this country.   

However, the European market’s worth €55bn, so there are plenty of other opportunities. If its UK business did suffer significantly, Trainline could always seek to take advantage of EU competition rules and establish itself in other markets alongside its existing operations in France, Spain and Italy. The group has sensibly built its technology with this in mind.

But until we know the charging structure of the new state-owned ticket retailer — and the timescales involved — it makes the investment case for Trainline too risky for my liking. On this basis, the stock’s not for me.

Instead, I think there are plenty of better opportunities available elsewhere.

James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Uber Technologies. 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Is this lesser-known penny stock the UK’s next 10-bagger?

With £10m in fresh funding, Mark Hartley considers the growth potential of an up-and-coming energy penny stock that’s had a…

Read more »

Happy woman commuting on a train and checking her mobile phone while using headphones
Dividend Shares

Anyone can claim a share of this £86bn of passive income!

This £86bn stream of passive income is open to anyone with spare cash to invest. Of course, it comes with…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

What’s a realistic goal to aim for when building a SIPP?

How big (or small) should someone dream when building up a SIPP? That depends on a number of different factors,…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

A once-in-a-decade chance to buy these 3 beaten-down FTSE 100 shares

Harvey Jones picks out three FTSE 100 stocks that have had a difficult decade, but says they're a lot cheaper…

Read more »

National Grid engineers at a substation
Investing Articles

Here’s what 100 National Grid shares bought 5 years ago are worth now

Christopher Ruane looks at how National Grid shares have performed over the past few years and weighs whether he ought…

Read more »

Red lorry on M1 motorway in motion near London
Investing Articles

Up 242% in 2 years! Can anything stop the rampant Barclays share price?

Harvey Jones says the Barclays share price has been racing along lately but questions how long the FTSE 100 bank…

Read more »

Investing Articles

Can these FTSE 250 dividend stocks with big yields shine in 2026?

Here are two dividend stocks with forecast yields of 8.6% and 6.8% after years of steady payouts, and with earnings…

Read more »

UK coloured flags waving above large crowd on a stadium sport match.
Investing Articles

Up 17% today! Is Wise still worth considering for a Stocks and Shares ISA?

Wise put a smile on the face of anyone holding it in a Stocks and Shares ISA today. What news…

Read more »