Shares in online rail ticker seller Trainline (LSE: TRN) steadied on Friday, down just 1%, at the time of writing. That’s a big improvement on Thursday’s trading, which pummelled the Trainline share price into a 23% fall. So what happened?
It’s all down to the publication of the ‘Williams-Shapps plan for rail’, to give it its proper name. The idea is to improve the UK’s rail transport system. As a rail traveler (pandemic permitting), the ambition gets a thumbs-up from me, although I won’t be convinced until I see it happen. But it’s being touted as the biggest UK railways shake-up in decades.
What’s this got to do with Trainline? Well, the plan will create a new national rail body, Great British Railways (GBR). And GBR will have its own ticket-selling platform. The fear, then, is that the Trainline service will be harmed, or perhaps even become redundant.
I previously thought the Trainline share price had a defensive nature, in the shape of the company’s well-developed system and infrastructure. But a new public body doesn’t need to worry about the costs of setting up a competing service. Or about being efficient, or making profits to please its shareholders.
The end of the line?
Even today, there are numerous different ways to buy train tickets. And that’s the beauty of Trainline. Instead of a patchwork of ticket sellers, travellers get a joined-up system that works well and is easy to use. I know, because I’ve used it, and it’s become my first choice every time.
To beat Trainline, GBR is going to have to do the same. So that’s a public sector organisation, offering a well-organised and customer-focused service, that’s as consumer friendly as Trainline? Maybe the Trainline share price isn’t under such a great threat after all.
How will GBR go about it? If it put me in charge of the new operation, I’d be tempted to franchise it out to Trainline. I doubt that’ll actually happen. But I do think it could be wise of GBR to find some way to use Trainline’s systems. It would surely be a lot more efficient than starting again from scratch.
So, do I sound bullish over the Trainline share price? Actually, I’m not. This is all just upbeat speculation, and I certainly won’t base any investment decisions on it. Right now, it’s all about profit and valuation.
Trainline share price valuation
It would be unfair to make valuation judgments based on the company’s 2020-21 results, hammered by the pandemic. The year saw a 79% slump in sales, resulting in an operating loss of £100m. But Trainline’s 2019-20 results had only shown a meagre £2m operating profit. That’s from £261m in revenue, and a pretty thin margin.
Adjusted EPS that year came in at 8.1p. On today’s Trainline share price, that’s a P/E of 39, and that’s after the shock share price crash. Prior to this GBR thing, Trainline shares were on a trailing P/E of 53 (again, based on 2019-20 earnings). That’s a hefty growth valuation, and I don’t see where the growth is going to come from. Especially not now.