The National Express (LSE: NEX) share price has been on an upward trend in the past year. It has outperformed both the FTSE 250 index and its competitor, Stagecoach.
The company has restarted operations in the UK from 29 March. Here, I would like to analyse the stock further to see if it’s a good opportunity to buy now.
The bull case for the National Express share price
The company’s revenue growth was steady pre-Covid-19. Revenue grew at a compounded annual growth rate of 12% from 2015 to 2019. In 2020, revenue fell by 29% year-on-year to £1.96bn. However, in the first two months of the year, revenue grew by 17%, after which operations were disrupted by the lockdown.
The company has a geographically diversified business. Even though the company is domiciled in the UK, it derives around 80% of its revenues globally. ALSA (bus and coach services in Spain, Morocco, and Switzerland) grew 23% y-o-y in the first two months of the year. It was primarily helped by new contracts in Morocco and good growth in Spain. North America revenue growth was boosted by new contracts and also the acquisition of WeDriveU.
National Express was also able to win profitable contracts beating its smaller rivals in the past year. This could help the company to further increase its market share. It also has a strong base of contracted revenue. I like revenues from contracts as they tend to be stable.
One of the main reasons for me to like National Express is the free cash flow generation. In 2019, the company had free cash flow of £179m. Free cash flow was negative for 2020 due to the pandemic; however, it was free cash flow positive in the second half of the year.
The bear case for the National Express share price
The company’s operations are severely affected by lockdowns across the globe. Revenue and profits might take a hit this year too. The company reported a loss per share of 14.6p for 2020. The median analyst’s earnings per share for the year 2021 is 5.94p. However, actual performance might differ from analysts’ estimates.
Next, due to work-from-home and travel restrictions, the business might not return to normality in the next few months. The company is targetting car users to use coaches as it will reduce pollution. However, unless the frequency of the buses is high, people might still prefer cars in the UK.
Looking into the balance sheet, the company raised debt last year. The debt-to-equity ratio increased this year. In my opinion, it is not very high. However, if the business environment does not return to normality, then this is a bit of concern.
Final view
I like the company due to the strong fundamentals. The revenue growth was good pre-Covid-19. It had stable free cash flows. However, I will wait to buy the stock, since the company’s revenue might take some time to pick up due to the lockdown restrictions.
