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BUY: Trainline (TRN)
The digital ticket group enjoyed a robust set of results in the face of recent regulatory fears, writes Christopher Akers.
This was a reassuring set of results for Trainline investors after Labour’s recent rail policy announcement caused the shares to drop amid fears that its ticketing plans could spell disaster. They will be breathing sighs of relief after Labour told the digital ticket app that they “have no plans to revive the current government’s previous proposal for a national retailing website and app”.
Solid financial and strategic progress was evident as Trainline confirmed revenue and net ticket sale growth of more than a fifth, in line with its guidance-beating update in March, and announced a new £75mn share buyback programme.
Adjusted cash profits rose by 42 per cent to £122mn as the UK consumer and Trainline solutions units posted double-digit profit growth and international consumer arm losses narrowed. Operating profit more than doubled to £56mn, with free cash flow shooting up from £8mn to £91mn and driving leverage down from 1.2 times to 0.5 times adjusted cash profits.
In the domestic consumer market, revenue rose 21 per cent on the back of the ongoing post-pandemic rail recovery, fewer strike days and consumers moving to digital tickets. Revenue at company-focused Trainline Partner Solutions was up 23 per cent.
Meanwhile, international consumer revenue climbed 17 per cent. Trainline is now the most downloaded rail app on the Continent as it takes advantage of market liberalisation.
In this new financial year, management expects revenue growth of 7-11 per cent. Net ticket sales are forecast to rise 8-12 per cent, with adjusted cash profits of 2.4-2.5 per cent of those sales.
The shares trade hands at 19 times enterprise value to cash profits. This is a relatively rich valuation, but we think it is worth it given trading, the outlook and the significant damping of the Labour policy risk.
HOLD: InterContinental Hotels (IHG)
The hotel group’s Americas market went backwards despite a good performance elsewhere, writes Christopher Akers.
InterContinental Hotels’ shares have risen by almost 40 per cent over the past year as the Holiday Inn owner recovered from the pandemic amid strong leisure demand. It is now reporting against tougher comparatives, which was evident in this first-quarter update as it disclosed slower growth in the key revenue per available room (Revpar) metric.
Revpar rose by 2.6 per cent in the period, compared with 7.6 per cent in the final quarter of last year and 16.1 per cent for the full year. The metric grew by 8.9 per cent in Europe, Middle East, Africa and Asia and 2.5 per cent in Greater China, but fell slightly in the Americas on the back of a 1.9 per cent drop in the US.
Global occupancy rose 20 basis points to 62 per cent, hamstrung by a fall in the Americas. The average daily rate was up 1.9 per cent, driven by a 7.8 per cent rise in EMEAA as rates declined elsewhere.
Management argued that the Americas performance was impacted by the timing of Easter. It added that demand had improved in April, with US revpar in growth over the last eight weeks.
Elsewhere, the company said it would bank $25mn (£20mn) this year from changes to its system fund arrangements. This part of the business posted revenue of $1.56bn last year, up 27 per cent over five years.
IHG also announced an agreement with Novum Hospitality in Germany, which it expects to add almost 18,000 rooms to its system by 2028. Room openings rose 11 per cent and the pipeline was 6.6 per cent ahead of the first quarter last year.
The shares trade on a relatively pricey 22 times forward consensus earnings.
HOLD: BP (BP.)
Production increased by 2.1 per cent, but underlying prices were not favourable, writes Mark Robinson.
In the run-up to the release of BP’s first-quarter statement, investors may well have been wondering if it would contain any details on whether the energy major would scale back its climate targets. In the event, there were updates regarding the Beacon US offshore wind projects and the carbon capture power station planned for Teesside, but the only explicit mention of climate change fell under the investment risk factors outlined by the group.
In the event, the day-to-day challenges of running a complex energy group took centre stage. BP’s upstream production rose by 2.1 per cent from a year earlier to 2.4mn barrels of oil equivalent per day. And the second quarter will benefit from new oil production from the Azeri Central East platform in the Azerbaijan sector of the Caspian Sea.
However, financial performance came up short of consensus expectations due to weaker fuel margins, lower energy prices, and the impact of the Whiting, Indiana, refinery outage. Underlying replacement cost profit — the group’s preferred metric — came in at $2.7bn (£2.2bn) against $5bn in the first quarter of 2023.
Profits more than halved at the gas and low-carbon energy division as hub prices clicked into reverse, although overall performance was bolstered by a strong oil trading result and higher realised refining margins. The good news for shareholders is that the dividend held steady at 7.27¢ per share and another $1.75bn is due from the ongoing share buyback in the second quarter.
Understandably, the fall in energy prices weighed on operating cash flows, yet the group still boosted capital expenditure by 18 per cent to $4.3bn. The group expects capital expenditure of around $16bn per year through this year and next.
The group’s new chief executive, Murray Auchincloss, is intent on driving cost efficiencies to the tune of $2bn by the end of 2026 relative to 2023. The measures will include a simplification of the business structure with an intensified focus on higher-margin elements, hence the lingering questions over low-carbon commitments.
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