National Express - Iron Maiden

National Express: Owning shares in National Express has been a patchy experience over the years, with an exposure to Spain and stretched finances hitting home in the late noughties. It was then that Jez Maiden became FD and he has played a large part in setting the group on a steadier course. So it is a shame that he is on his way to Croda International soon. He leaves behind a group including UK bus, coach and rail (C2C), Spanish bus and coach, North American student transport and from the end of next year German rail. The latest update was for their third quarter to 30^th September 2014, but all seems to be well.

After a 9% drop in first half profits, the third quarter saw a 15% rise. Revenue and profits across the group moved ahead. Contract wins were also booked in the new Middle East segment, as well as Spain and US transit. The C2C franchise (Southend to London) was renewed until 2029, a long enough contract to make the profit stream worth more than the low PE attached to some historic, shorter term, contracts in the industry. The fact that the Spanish economy seems to have turned the corner gives the group a tailwind there for the first time in yonks.

The guidance from National Express is that they are on target for full year profit and cash expectations (£150m). On the back of modest upgrades, 22p of eps for calendar year 2014 is a PE of just 11.2x at 247p. Dividend cover has been running at a tickle over 2x, so a dividend of 10.5p say gives a nice yield of 4.3%. The balance sheet gives no reason to think this isn’t do-able. Overall then not the best known stock or the most blue chip, but subject to a decent replacement FD it looks good value. (Neil Cumming, 4^th November 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk