Coach travel operator National Express (NEX) posted a rise in profits thanks to strong growth in North America. Pre-tax profit rose 11% to £136.3m in the year to 31 December 2016.
While record passenger numbers were reported in both Spain and Morocco, it's the much bigger market of the US and Canada that leads the way. North America revenue and operating profit jumped 14.3% and 11.9% respectively, albeit bolstered by eight acquisitions last year.
Local currency profits beat forecasts of HSBC analysts by 6% in Spain and 5% in the US respectively.
But its home UK market remains an ongoing concern. This is partly due to what the company calls 'changing travel patterns,' but also because of increasing traffic congestion. The impact means that on roughly flat revenues in both its UK coach and bus units saw operating profit rise just 3%, and fall 5.3% respectively.
This is probably why the share price gain today is capped at just 2.4%, to 350p, after otherwise pretty decent figures.
Now freed from running its problematic c2c rail franchise in the UK, which was sold to Trenitalia for around £70m on 10 February, National Express can focus on UK building passenger numbers. It will also have scope to invest further in faster growing US operations, plus an apparently promising rail franchise in Germany.
To that end, guidance of better free cash flow going forward to £120m is welcome news. As is the full year dividend, raised 8.4% on 2015 to 12.28p per share. Similar income growth this year would imply a 3.8% payout yield.
HSBC Global Research analyst, Joseph Thomas, reiterated a ‘buy’ recommendation on the stock on Thursday. The analyst calls the business 'unique among the publicly quoted transport operators in not depending on rail franchise wins to generate new growth.'
Thomas is also hopeful that the company will continue to sensibly put its rough £60m of cash at hand to good acquisitive use, even in the face of rising net debt. Borrowings less cash increased from £745.5m to £878m in 2016.
