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Trainline is at risk but not much will change for train operators, while FirstGroup has another issue to face
Thursday 27 May 2021 Author: Mark Gardner

The biggest shake-up to railways in a generation could have a huge impact on one London-listed transport stock and a limited effect on others.

Flexible season tickets, more e-tickets and a simpler way of buying them have all been promised by the Government with the formation of a new state-owned body called Great British Railways.

The plan is that from 2023 onwards it will sell tickets as well as setting prices and timetables in England and managing rail infrastructure.

In theory the impact on train operators could be significant given the new reforms will signal the end of the current franchise model. But shares in the train operators have barely reacted to the news, as it was already known for some time the franchise system was changing.

In addition, the new model will still see trains run by private companies under new passenger service contracts, with operators paid to run trains and incentivised to increase passenger numbers and provide high quality services.

One stock which could be hit significantly is online travel platform Trainline (TRN), which continues to trade around 30% lower in the wake of the announcement amid ongoing concerns its business model could be at risk.

The potential threat is two-fold. First it will face a state-backed competitor for the ticket sales from which it derives its revenue (based on a 5% commission) and second, its value-add revolves around making the process of buying tickets simpler.

Analysts at broker Peel Hunt say the new system could also have some positive implications for the company. They argue that flexi-tickets for hybrid commuters could actually represent a ‘significant opportunity’ for Trainline, as it currently has low exposure to commuters.

New flexible monthly tickets will be digital only, which Peel Hunt says will leave Trainline well placed to cater to demand considering some 30% of UK industry sales are e-tickets, of which Trainline’s consumer business makes up around 70%.

Another transport stock on the move in recent weeks is FirstGroup (FGP), which has gained around 15% since the middle of May.

However, this is unrelated to the new railway plans and centres around the firm’s decision to sell its US bus business, its most profitable division, to private equity group EQT for £3.3 billion.

Activist investor Coast Capital, which is FirstGroup’s largest shareholder with a 14% stake, has threatened to take legal action to renegotiate, delay or call off the transaction, calling it a ‘terrible deal’.

Coast’s stance has been backed by the second-largest shareholder, fund manager Schroders, as well as proxy adviser Glass Lewis which recommends voting against the deal due to ‘poor transaction timing and inadequate valuation’. However the third-largest shareholder, fund giant Columbia Threadneedle, has voiced support for the sale, along with three proxy adviser agencies.

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