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That revenue forecast is way too conservative; they're predicting revenue of under 3400 mil by 2025.
Even if you use 2022 to forecast 2023 because historically H2 is always stronger you'd end up with over 3340 revenue.
E.g. 2022 H1 was 1.32 bil. 1.32x2.129 makes 2.81 bill
The 2.129 is essentially the strength of H2.
For HY 2023 you got 1.57x2.129 makes 3.34bil, but allow for a stronger H2 as stated in HY results.
By 2025 this company will have over 4 billion in revenue.
Good morning,
You often notice many stocks have strong support levels even in their downtimes; British American Tobacco refusing to go below 2400-2500. Even speculative stocks like CTL can hold strong support; it has held support firmly at 37-38p, or SPCE in the low $3s range. MCG is yet to establish this, although I believe we are quite close.
Volume is seriously low since November 2022; the buying demand is obviously weak, but I wonder the rationale for selling at 2009 levels. The potential upside vs downside appears quite positively skewed; it's not like a share offering or bankruptcy is even remotely realistic. I would be expecting more sideways movement. Is it simply small time PIs giving up/panic selling? A very large % of float is held by institutions who are apparently not selling given the volume is so low. Crowd mentality can easily overpower reality given I have been making satisfying returns on meme stocks that are likely heading for bankruptcy. I feel a similar thing is happening here but in the negative sense.
Cash call is out of question. There is no need as economy of scale will outpace the debt over the next 5 years. Gearing will fall in line.
And it would just be nonsensical to do it after issuing a dividend. Those two moves don't match up.
Maybe there would be a dilution if this was called Virgin Buses.
It's not a bad day at all.
Someone posted about shorts reducing. I'm no expert on shorting but is it fair to say they were expecting worse results/forecasts and are taking profits expecting no further falls? If things were going downhill they would instead increase their positions.
They don't matter too much in any case for long term holders but it's interesting to see shorts reducing while there is speculation on here about going to 60p.
A comparison to ASOS Or Cineworld is a really not right. Cineworld literally filed for bankruptcy this year, meanwhile MCG is on track to increase their overall dividend this year, financed by free cash flow. They are planning to set up a Eurostar competitor.
The talk of financial distress is also really inaccurate. Months ago some guy was posting about how they won't be able to refinance the 2024 bond and have to issue shares instead because their ROCE is too low... this is just untrue and was never even a remote possibility. It's easy and tempting to talk of financial doom when the share price is down but stick to the facts and reasonable forecasts. Worth mentioning they did forecast margin reduction a whole year ahead; June 2022 press release stated this would happen with the US bus business and they would then recover in H2; it's not like this was unexpected and the price recovery plan is just a cheap excuse.
Debt should definitively not be ignored here though. Best case scenario we will still have a lower net profit this FY but 2024 the sheer revenue growth with improving margins should simply begin to simply outscale the interest. I do get the frustration here; rest of my portfolio is making good money on pumping US stocks with questionable paths to profit, 70% in a day on memes like Nikola who used to roll their down trucks down a hill in promos. Meanwhile this is just dragging.
I predict a 85p bottom but it has shocked me that even went below £1. If there wasn't a clear path to a major recovery I would have sold my holdings months ago. They will literally outgrow the debt. The only fair argument to sell at this price is the opportunity cost of not piling onto the US rally; but you're just swapping one risk for another.
I think the market is pricing in not meeting 200-215 EBIT forecast. I'm a bit sceptical myself; it does seem very ambitious.
2022 H2 was at 7.1% margins.
H2 2023 will need to be at 7.5% operating margin which seems hard to meet with how H1 went. We're looking at a 4%+ margin increase from HY1. To be fair ALSA is still running at a 10%+ margin, it's the US school bus business that needs the pick up to make up the numbers.
Just to add some further numbers on future revenues and margins (speculative)
6% Margins on revenue
3.6 bil = 216 mil EBIT
3.8 bil = 228 mil EBIT
4 bil = 240 ebit
7% margins
3.6 bil = 252 EBIT
3.8 bil = 266 EBIT
4 bil = 280 EBIT
8% margins
3.6bil= 288 mil
3.8 bil= 304 mil
4 bil - 320 mil
Barring any surprises and if the price increases work, 2024 could be a 250 mil+ EBIT year.
If we get 3.8 billion revenue at 7% in 2024 it would give 184 post-interest profit (266-82)
As a side note; Eurostar revenue was 1.53 billion 2022 with 322 million operating profit which is a 22% margin. A piece of that would be good if they can break into it.
I agree strong chance of 80s. 70s quite unlikely. If you held it all the way down to 70s why would you sell then?
The numbers I've done in terms of revenue and margin forecasts for long term reassure me, and there is a growth case to be made. Bankruptcy is out of question and a dilution is EXTREMELY unlikely (cash flow positive consistently, gearing stable), but the share price will do what it will. My holding loss has crossed over 10 thousand, but in a Lifetime ISA I can hold this comfortably for a prolonged time.
In my opinion, if you sell now you will regret it in 2-3 years. A 25% loss or even a 40-50% loss is easily holdable. It's not like this is AMC or BBBY. But definitively brace for short-medium term pain.
Margins might have a little more room than that
Assuming 200 million operating profit this FY
At 3.4 billion revenue an overall 5.8% operating margin
At 3.5 billion operating margin 5.7%
3.4 billion is the minimum revenue for FY23 In my view
-Last HY1 1.32 bil was 47% of FY revenue, H2 was 1.49
-This year we have 1.57 bil H1 - 19% increase YoY
-Assuming 19% H2 growth YoY we would have 1.77 for H2 - 1.57+ 1.77 makes 3.34 bil revenue
-Make an allowance for a heavier H2 with new contracts, more passengers, pricing recovery - 3.4 bil is the minimum, 3.5 quite possible.
-Let's say H2 is 1.8-1.9 billion.... Operating margins in H2 need to be 7.5%-8% to meet the 200m profit forecast overall.
Last year's operating margin was 7% dead on. You are correct; if this can catch up to inflation and restore historical margins then we're in good for a lot of money generation.
Worth noting the 200-215 estimated profit is pre-interest. In a best case scenario looking at 120-130 million or so adjusted profit before tax when you take the 75 million interest in account, down from 145 adjusted profit before tax last year.
Their slides state the UK fare increases, US contract renegotiation and cost reduction will account for 50m of the H2 profit + a healthy chunk of growth. They are also forecasting the new contracts will provide 28% ROCE vs the 5.9% this HY/7.7% last year. If they can pull off the price increases with continued strong growth then this will all work out.
The margin improvements are the thing to watch for. The decline is the reason for the carnage today. Revenue growth is excellent but is just vanity unless it can be turned into profits. The margins don't even need to be that high... just sheer passenger and revenue growth at 7% margins will handle the debt well enough.
UK Bus Fares increased by 12.5% from July 3rd.
ALSA already working at a good margin - probably saved the stock from a 15-20% down.
US - Adjusted margin 2.4% vs 11% last year. The plan is contract price raises to cover wages which they are stating is 13% vs 10.3% last year. Being able to reinstate more routes will help drive revenues as well.
I will re-invest my dividends and Lifetime ISA on the next top up.
It's all going to come down to margins. 3.3-4 billion revenue this full year is possible. If margins recover particularly in US then this will a cash printer. Revenue growth is really encouraging but needs to turned to profit with margins
Quite disappointing the margins went down so sharply in US but they are confident they can recover this. That's the next decisive point for this stock; likely to be in the dumps for a while here unfortunately.