Where next for the National Express share price?

The National Express (LON: NEX) share price hit a decade-high of 476p on 27 December 2019, before calamity struck. The pandemic caused a FTSE 250 index crash which saw the index fall 38% from 21,780 points on 21 February 2020 to 13,593 by 20 March 2020. As a travel stock, National Express was hit worse than average, falling 70% from 439p to 133p in the same one-month period.

Worse still for long-term shareholders, while its share price has recovered some ground to 248p, it’s still worth 191p less than its pre-pandemic value. Meanwhile, the FTSE 250 index is now at 22,634 points, almost 1,000 points higher than when the pandemic began. However, National Express shares could be about to round a corner.

National Express share price: Stagecoach merger

The Stagecoach share price trajectory mirrors National Express’s, but to a lesser degree. It fell 57% from 141p to 61p during the mini-crash, and like its merger partner, has recovered some ground to 86p today.

On Tuesday, the companies agreed a merger deal, three months after starting talks to amalgamate back in September. The deal involves an all-share takeover by National Express, where National Express shareholders will own 75% of the new group, and Stagecoach investors the remaining 25%. National Express shares jumped 5% on the news, while Stagecoach shares leapt 12%, with the deal valuing the latter at £437 million.

Long-term, the companies plan to cut costs by £45 million through synchronising routes and repairs, as well as cutting duplicate office jobs. However, no drivers or depot workers will be made unemployed. Nevertheless, the £1.9 billion deal is still likely to face intense scrutiny from the Competition and Markets Authority (CMA), as this proposed new entity would control 40,000 vehicles and 70,000 staff. To placate the CMA, Stagecoach is proposing to sell off its Megabus UK and South-West based Falcon coach services, as well as its 35% stake in Scottish Citylink bus services. With the merger set to be finalised in a year’s time, it’s possible that the CMA might reject the deal, or demand more selloffs to offset this overly powerful market position.

Merger advantages

However, after two years of lockdowns, remote working, and a consumer shift towards cars, both companies might argue that the merger is necessary to ensure the survival of the UK’s privatised transport network. And with government support winding down in the face of the Omicron variant and rising inflation, the CMA may well choose pragmatism over the potential damage to competition.

And the merger is likely to make the combined company more resistant to localised national downturns. Stagecoach is the largest bus and coach operator in the UK, while National Express has international operations in Spain, the USA, and Germany. And National Express is planning to create a symbiotic network with Stagecoach, where consumers use the former’s coaches to go from city to city, and the latter’s buses to move within towns and cities.

Moreover, the Electric Vehicle (EV) revolution is coming down the track. The UK government currently plans to ban sales of new Internal Combustion Engine (ICE) cars by 2030, with similarly progressive plans emerging across Europe and the USA. The merger makes the business case for government investment in National Express stronger and will also give both companies a better physical infrastructure to roll-out EVs. And National Express recently signed its first bus ‘availability’ agreement, enabling it to use zero emissions electric vehicles without capital outlay. Moreover, it already plans for its UK buses to be net zero by 2030.

And in further good news, National Express’s Q3 trading update saw revenue rise 83% compared to Q3 2019, while fuel is fully hedged through 2023. And unlike many other FTSE 250 companies, it has ‘seen no material impact from input cost inflation.’

While the Omicron variant could see travel stocks hit the brakes once more, the National Express- Stagecoach hybrid could explode as the global economy recovers.

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