Online rail ticket seller Trainline (LSE: TRN) is down 23%, as I write, making this FTSE 250 stock the biggest faller on the London market today. Trainline’s share price has fallen by around 30% over the last year.
Today’s crash was triggered by news that the government intends to create a new national rail body. This will operate its own ticket selling platform, which could threaten Trainline’s business. However, that hasn’t happened yet — and Trainline has plenty of experience in ticket sales. Could today’s fall actually be a buying opportunity for Trainline shares?
What’s happened and why it matters
The government plans to restructure the UK’s rail system. A new public body, called Great British Railways (GBR), will oversee rail infrastructure and develop a new unified online ticketing platform.
As regular rail users will know, the current ticketing system is complicated and fragmented. In my experience, it’s quite easy to pay several different prices for the same journey. The plan is to simplify and unify ticketing, with features such as flexible pricing and online compensation.
The potential impact on Trainline isn’t hard to imagine. The online seller makes most of its money from commission on rail ticket sales. Part of Trainline’s investment appeal is that it can link together all the different parts of the current ticketing system.
If the new GBR ticketing platform delivers a properly-integrated digital service, Trainline’s UK offering may become redundant.
The story isn’t over yet
However, I can see some reasons to be optimistic about the outlook for Trainline’s battered share price.
As I mentioned, GBR’s proposed ticketing platform doesn’t exist yet. Building a modern, integrated rail ticketing system for the UK could take a while. Indeed, I reckon Trainline might even get involved in this process. The company already has more knowledge than most about UK rail ticketing.
Trainline’s strong brand and user base might also mean the company can maintain its share of UK ticket sales when the new system is introduced.
Finally, Trainline has international ambitions. In the year before the pandemic, the firm sold £3,237m of UK tickets and £490m of international rail tickets, mostly in France, Italy, and Germany.
Unfortunately, international sales only generated £26m of commissions and other income, compared to £235m from UK ticket sales. The international business doesn’t yet seem big enough to support Trainline’s future.
Trainline share price: stand clear
Even before today’s news, I thought Trainline shares looked too expensive. The company’s revenue peaked at £261m in 2019/20, but even then, the group reported an operating profit of just £2m.
Broker forecasts before today suggested Trainline’s profitability would improve quickly from 2022 onwards. If these forecasts stay unchanged, then the shares are trading on 35 times 2022/23 forecast earnings after today’s crash.
For me, that’s still too much to pay for a company that’s never generated decent levels of profit and is facing a new challenge to its main business.
I think Trainline’s share price could have further to fall, so I won’t be buying.
