Bus operators never seem to be firing on all cylinders but as a shareholder I was reasonably pleased with the latest update from National Express (NEX). Group revenue rose by 5.4% in the first four months of 2017 even before allowing for the benefits of forex changes that boosted the gain to 15.4%, a fair enough performance though one that included some black spots.
For example, while revenue from long distance coach transport in the UK rose by 2.7%, bus services saw a 0.5% decline as passenger numbers fell 0.7%. I do take heart from the amazing discovery – well, it seems to have taken National Express by surprise – that reducing fares on some West Midlands route has brought an increase in passenger numbers and in revenue and that this jolly little wheeze will now be tried on other routes.
North America, where life has often been fraught with difficulties for UK bus operators, has had a strong start to the year with revenue up 5.8% in constant currency, albeit in part thanks to recent acquisitions.
The retention rate for services where operators tender for the contract has seen an impressively high retention rate at 96%, with an average price increase of 3.8%.
The AGM was told that the group is on track to meet expectations for profit and cash flow, a message that translated into a modest rise in the shares. They are near their 12-month high and although I am happy to keep holding I’m not sure I can make a strong case for buying at this stage. If you do make a purchase, bear in mind that you need to be in for the long haul.
Barratt Builds Up Profits
Let’s continue in cheery tone with yet another strong update from a housebuilder, this time another of my holdings, Barratt Developments (BDEV). Barratt is set to not only meet profit expectations but to come in at the top end of the range.
Barratt expects to sell more houses this year than at any time since 2008 with profits set to rise by 7%. This was welcome news for shareholders as it coincided with a report from the Royal Institution of Chartered Surveyors suggesting that buyers are disappearing from the market.
Other surveys have suggested that house prices are peaking and possibly even falling. My whole premise for being overweight in housebuilders is that demand will continue to outstrip supply even if large numbers of EU workers flee these shores after Brexit.
The shares have recovered all the sharp losses suffered in the aftermath of the referendum. Well done anyone who had the nerve to step in after the gross overreaction last June and July. I feel that housebuilders are now generally fully valued but see no reason to take profits yet.
Embracing New Revenue Streams
John Menzies (MNZS) is forever linked in my mind with WH Smith (SMWH) as a distributor and retailer of newspapers and magazines but it took longer to realise that this is a dying industry. It should, however, be out of news distribution this summer and like Smith, in which I own shares, has seen travel as the way forward.
While Smith’s highly successful answer has been to open retail outlets at stations and airports, Menzies has moved into aviation services with equal success. Its AGM update confirms that this side of the business continues to grow profitably and it is also adding a distribution contract with NHS Scotland as another promising arm.
Menzies shares are now back to the £7 mark last seen three years ago so good news is priced in but shareholders should definitely hold on for the ride.
