National Express expects profitability to lag recovery in revenues

The intercity and inter-regional coach operator cited a stronger-than-expected recovery at its ALSA unit, driven by "strong" organic growth in Morocco, German rail revenue running at four times its pre-Covid 19 level and rising shuttle revenues in the US as workers return to their offices.

In the UK, topline growth was in line with expectations with airport volumes building back "strongly" and the company's expectations were for an equally strong summer.

Management also reiterated their intention to reinstate a dividend for the 2022 full-year.

In the medium-term, National Express anticipated sales growth of at least £1bn between 2022-27 and, as previously guided to, an average profit margin of 9.0%, rising to around 10.0% towards the end of that time horizon.

However, for the short-term, the company reiterated its forecasts for the recovery in profitability to lag that in revenues, although margins were seen improving sequentially versus 2021.

It also noted the "unprecedented" levels of wage inflation in the US amidst industry-wide driver shortages.

On the flip-side, the company said that its service offering provided great value travel at a time when Britons' spending power was being squeezed.

National Express also expressed "confidence" in its ability to deliver free cash flow of at least £1.25bn between 2022-27 with cash conversion to approximately 80%.

A shift in mix towards lower margin but higher return-on-capital-employed businesses was expected to drag on margins, but decarbonisation of the fleet and the switch from outright purchases towards availability contracts was seen "materially" reducing upfront cash outflow and boosting returns on invested capital.

The company also said it was intent on reducing its leverage to 1.5-2-0 times.

As of 1135 GMT, shares of National Express were falling 7.1% to 251.40p.