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National Express knocked down to 'Neutral' by UBS on valuation grounds

The bank said the FTSE 250 transport provider had outperformed its UK peers but given its current business model there was a limited risk to earnings on both up-or-downsides

National Express coach
Despite the downgrade, UBS upped its target price for the group to 415p from 410p

National Express Group PLC (LON:NEX) has been downgraded to ‘Neutral’ from ‘Buy’ by analysts at UBS on valuation grounds following a period of outperformance which brought it close to the target price.

The Swiss investment bank said the FTSE 250 transport provider had outperformed its UK peers over the last 12 months, primarily due to its lack of exposure to the UK’s rail sector and a diversified business mix but given its current business model there was limited risk to earnings on both up-or-downsides, and thus was fairly valued.

READ: National Express rebuffs snowy weather with revenue growth at start of 2018

Analysts also highlighted that while growth opportunities did exist, with North American expansion and tender and acquisition opportunities in Europe and the Middle East among them, bidding for these would likely come at the expense of short-term profits as well as a potential increase in labour costs due to tightening regulations in a number of markets, especially the USA.

They added that the recent changes in the Spanish government could also delay the re-tendering process for its Alsa branch, the biggest operator in the country.

Despite the downgrade to its rating, UBS upped its target price for the group to 415p from 410p, saying: “Although we do not regard NEX as particularly expensive, it has the misfortune to be in a sub-sector where its peers are facing significant challenges”.

They added: “[T]here are some potential headwinds to the investment case (wage inflation, Spanish re-tendering, oil price) and for this reason we believe the current share price is a fair reflection of the situation with only a small change to sum-of-the-parts valuation and estimates”.

In late-morning trading Monday, National Express shares were down 3.8% at 386p.

Quick facts: National Express

Price: 249.4 GBX

LSE:NEX
Market: LSE
Market Cap: £15.32 m
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