Trainline's discount to the market "unwarranted", says Shore Capital

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.”