Trainline (LSE:TRN) shares slumped by approximately 30% last week. What caused the Trainline share price drop and is there a buying opportunity for me here? Let’s take a look.
Trainline share price goes off the rails
Last week, the UK government published long-anticipated plans to overhaul the railway sector. Dubbed the Williams-Shapps plan, it outlined plans for a new state-owned railways body to be named Great British Railways. The new organisation will be in charge of the development and maintenance of infrastructure, operating the rail networks, and setting fares.
In a potential blow to Trainline, Great British Railways will also host its own online platform to sell tickets. This news is what caused the Trainline share price to slump over 30% since last week.
Prior to the announcement last week, Trainline shares were trading for 428p per share. As I write, I am able to buy shares for 284p per share. In the past 12 months, the Trainline share price has lost over 40% of its value. This time last year it was trading for 515p per share. This price was its highest point of recovery from a market crash low of 225p per share. Pre-crash levels were 548p.
I am not surprised that the Trainline share price did slump after the news broke last week. Despite being a leader in online train ticket sales for many years, Trainline has often struggled to turn a profit. The possibility of a government-backed enterprise will have spooked investors even further.
Can Trainline shares recover?
Trainline saw travel restrictions affect its bottom line in 2020. Between February 2020 and 2021, Trainline only generated £67m in sales. This is approximately 75% less than the same period a year before. The Trainline share price did begin to recover after the first lockdown when restrictions eased and the vaccine rollout began. This recent development will be a bitter pill to swallow. However, despite the recent doom and gloom, I wouldn’t write off Trainline just yet.
The Williams-Shapps report that was released last week outlines a new enterprise backed and run by the government. These plans becoming a reality may take a number of years. Plus, the UK government isn’t exactly renowned for its efficient project management delivery. See HS2 as case in point.
The Trainline share price and overall investment viability may suffer due to domestic issues here in the UK, but international sales are on the up. Year-on-year, its proportion of ticket sales in international markets has been growing. In 2018, this was 10% compared to 13% in 2019. In 2020, the proportion was closer to 30%. This may be a sign that there are other markets Trainline can focus on to generate income away from the UK.
My verdict
I think its way too early to be counting out Trainline after last week’s announcement. The Trainline share price has taken a massive hit due to the news. Despite that, Trainline has one key advantage in my opinion, which is time. I don’t foresee any rival UK-government backed platform being available or functional for a few years at least. This could offer Trainline the opportunity to put plans in place to offset the impact of Great British Railways.
Right now, I wouldn’t buy Trainline shares for my own portfolio. I will keep a keen eye on developments, however.