Canaccord Genuity reiterates 'buy' rating on Trainline ahead of interims

Canaccord expects Trainline to deliver a strong update, with potential for upgrades to full-year consensus. It noted that Trainline already reported in a first-half trading update that group net ticket sales had grown 23% to £2.65bn and group revenues were up 19% to £197m despite ongoing train strikes. Growth reflected channel shift, new product development and a recovery in industry passenger volume growth.

The Canadian bank said that while no underlying earnings guidance was given, with growth being driven by UK consumers and software-as-a-service Trainline Solutions, this should be "positive" for EBITDA given "significantly higher margins".

"In September, the company reiterated guidance of NTS and revenue growth between 13-22% (consensus NTS +17%, revenue growth +16%) and EBITDA margin between 2.15-2.25% of NTS (consensus 2.1%). The company requires H2 NTS growth of just 12% to meet consensus, while the implied consensus EBITDA conversion is just circa 48%, well below the pre-Covid average of circa 70%," it said.

Canaccord, which also reiterated its 371.0p target price on the stock, forecasts interim revenue growth of 19% to £197.0m and underlying earnings growth of 24% to £56.0m, with adjusted pre-tax profits rising 32% to £17.9m.

"Trainline stock has never been cheaper since initial public offering, trading on a FY24E price-to-earnings ratio of 22.4x, enterprise value/EBITDA of 10.8x, free cash flow circa 6%. We currently forecast earnings per share doubling between FY24E-28E (four-year compound annual growth rate 22%); yet based on the current share price, this could treble assuming all FCF is used to buy back shares (four-year CAGR 33%)," added the analysts.

Reporting by Iain Gilbert at Sharecast.com