UK train ticket seller Trainline (LSE: TRN) shares have had a rollercoaster year. The company limped into the sidings, with the share price dropping from over 500p to under 200p in just a few months. Then, boosted by hopes that a vaccine could get commuters back on the rails, shares have rallied to over 450p.
Despite the recent surge in share price, I don’t share many investors’ apparent confidence in Trainline. Here is why I do not plan to buy the company’s shares any time soon.
The CEO sold some of her Trainline shares below today’s price
The company’s chief executive announced last month that she would be stepping down. A new chief executive would be in place early next year. The outgoing chief executive also sold 800,000 shares in the company in August, at 400p. I find it interesting that she apparently thought 400p was a good price for those shares. Given that their current value is higher than that, I wonder whether the share price has got ahead of itself. I also don’t think that the management transition is necessarily a good sign. Changing bosses in the middle of what is a very difficult time for the company does not inspire confidence in the outlook for Trainline shares.
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Trainline has had a difficult 2020 partly because of its business model. Whereas train companies have received substantial subsidies from the government to sustain services, Trainline is simply a ticket seller. If it doesn’t sell tickets, it doesn’t make much money. Unlike train operating companies, it has not received taxpayer funded bailouts to cover reduced passenger demand.
In its most recently reported six-month period, revenue fell more than three-quarters. Net ticket sales were even worse, at just 19% of what they had been in the equivalent prior period. Meanwhile, with the revenue decline causing a financial crunch, net debt had increased markedly from £59m to £166m. The company is hurting badly from the pandemic, so I don’t see why their share price has rebounded so strongly
I don’t see an easy recovery for Trainline’s business
The sharp upward movement in Trainline shares seems to be based on the idea that as a vaccine is rolled out, train passenger numbers will return to normal. I am not so sure about that.
First, we don’t know how long it will be before an effective vaccine is widely deployed. In the coming months, at least, I don’t expect Trainline’s revenues to return anywhere near normal levels. More worryingly, I wonder whether many train passengers will return at all. The pandemic has switched many businesses over to full-time remote working. Employers are happy to cut office rent bills and workers are happy not to spend thousands of pounds a year on uncomfortable commutes. I suspect that a lot of previous commuters won’t go back to their previous level of train usage, ever.
On the leisure side, I also have doubts. Many people have been frightened by the pandemic and feel vulnerable being in a confined space with other people. I think some leisure travellers will also no longer book train trips through Trainline with the frequency they once did.
Trainline’s revenue prospects look significantly damaged to me. Yet the share price continues to rise. I think the rally is overdone. I won’t be buying Trainline shares at current prices.
