The shares in travel and tourism companies held up particularly badly, as the markets fell. This is understandable. Measures to control the Covid-19 pandemic prevented people from traveling for work and leisure. Nevertheless, the sector is a good place to chase stock market deals.
This update has undoubtedly reassured investors. But before we get there, let’s remember the recent history of National Express.
Dealing with a stock market crash
standardized“The numbers, an attempt to divert attention from the loss that has been made.” Data-reactid = “27”> The 2007-2008 financial crisis and the ensuing recession left National Express in a precarious position in 2009. The decline in the number of customers revealed a weak balance sheet and poor businesses. The 2009 annual report was littered with references to “standardizedAn attempt to divert attention from the loss that has been made.
A new CEO took over the management of National Express in early 2010. Underperforming companies were eliminated, debt was reduced, the dividend was reduced, and profitability was restored. Proof of the extent of the restructuring, 2009 sales were only exceeded again in 2019.
Now National Express is facing another crisis. This time the CEO has previous experience of driving the business through a crisis and on the other side and has been at the helm for 10 years. However, experience counts for nothing if it is not carried out.
Prior to 2009, National Express had operating margins in the range of 6%. It covered its interest expense just over twice with operating profits and financed its assets with almost four times more debt than equity. The UK market was responsible for 63% of the company’s revenues, with North American and European small businesses providing 16% and 20% respectively.
In 2019, before the start of the crisis, operating margins were in the upper 8% range. Interest expense was covered three and a half times by operating profit, and total liabilities were just under three times total equity. The geographic composition of income is also different now; the United Kingdom accounts for 22% of revenues, North America 45% and Europe and North Africa 30%.
Cheap return trip
Before this crisis, National Express was in good shape. However, the disruption of its services this time is at least as serious as in 2009. This disruption, potential or increasingly real, has lowered the share price. The National Express Covid-19 update reassured investors in three ways.
First, it was recalled that the company was in good financial health and was taking steps to reduce costs. Second, many of the company’s contracts are partially or fully honored, and the government will bear wage costs. Third, in the first two months of the year, the group’s turnover increased by 17%.
The last point is important. National Express operates school and public transit buses, intercity and international bus services, operates charter and private flights and provides rail services. Revenues and profits had increased steadily before the coronavirus hit, as did stock prices. Dividend yields have averaged 3.7% over the past five years.
I think National Express is a stock market crash. We may not be out of the woods yet, but the company is well positioned to weather this crisis and prosper.
The Post Is this FTSE 250 action a stock market crash? first appeared on The Motley Fool UK.
James J. McCombie owns shares of National Express. The Motley Fool UK does not hold any positions in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of information us better investors.“data-reactid =” 46 “>James J. McCombie owns shares of National Express. The Motley Fool UK does not hold any positions in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of ideas makes us better investors.
Motley Fool UK 2020