Broker tips: Analysts positive on CAB Payments and Trainline

The financial profile of the B2B cross-border payments and foreign exchange solutions provider is “very attractive”, Canccord said in a research report on Wednesday.

“Over its 100+ year operating history, the group has established an extensive proprietary network of direct payment rails to emerging markets, which is a powerful competitive moat,” the broker said.

In terms of stock’s current valuation, Canaccord said, when comparing CAB to 16 other global and UK-listed FX and payments companies, the stock should be rated much higher than it is at the moment.

“Using a combination of EV/EBITDA and PE multiples for this group, and a focus on 2023 [calendar year] forecasts, the implied valuation range for CABP is £1.3bn-£1.7bn.

“Importantly, we note this range is based purely on peer group averages and excludes any premium valuation that might be attributed to CABP due to its superior historic and forecast returns. We take the midpoint of the range (£1.5bn) to derive our 585p target price.”

The stock was up 2% at 255p on Wednesday afternoon.

Trainline is being undervalued by the market, according to broker Shore Capital, which sees huge upside for shares of the rail and coach booking platform.

The broker has initiated coverage of the stock with a ‘buy’ rating and a 320p target price, compared with Wednesday’s price of 247p, up just 0.3% on the day.

Shore Capital said that, if you exclude international operations from calculations – which have negatively impacted EBITDA since Trainline’s IPO in 2019 – the stock trades on an enterprise value-to-EBITDA ratio of just 9.6x. This is an "unwarranted discount" compared with the sector-average EV/EBITDA at 12x.

“We believe the group has a positive outlook, driven by our assumptions of long-term robust revenue growth, margin accretion and good free cash flow generation, and our cash flow-derived analysis suggests a fair value of over £3 per share, c14x EBITDA,” the broker said.

Shore Capital said the current valuation “fails to account for the dominant coverage and market share opportunities from increased digital ticketing trends, as well as improving financial metrics and B2B scaling.”

What’s more, when including international operations in the valuation model, Shore Capital estimates that this could deliver another 40p to the share price.

It expects Trainline’s international operations to break even in 2025 as a result of rapid revenue growth and potential market share growth. “If, however, the group can increase its market share [internationally] from mid/high-single digits to a similar exposure in the UK, c.30%, we see scope for this to go up to £1.40 at least for International.”