Trainline: ticket group should continue to benefit from UK rail chaos

Receive free Lex updates

We’ll send you a myFT Daily Digest email rounding up the latest Lex news every morning.

The railways made Britain great during the industrial revolution. Today they suffer from labour strikes, mismanagement and underfunding. Surprisingly, these factors benefit online vendor Trainline, a one-stop shop for tickets. It said fare sales rose 23 per cent in the first half of the year to £197mn. The announcement of a £50mn buyback programme pushed its shares 12 per cent higher on Thursday. 

Trainline’s journey has heretofore not been smooth. Its share price, now about 280p, is well below its 2019 IPO price of 350p. The shares have tracked sideways this year. Its enterprise valuation at 12 times forward ebitda sits below UK online ecommerce platforms Rightmove and Auto Trader, trading at 16.4 and 15.7 times.

The pandemic, which reduced train travel, in effect ended Britain’s rail franchising system. That did nothing to improve labour relations. Steep cost-cutting programmes, including the closure of ticket offices, have resulted in regular strikes. These also continue to affect train usage.

Yet travellers have returned. Journeys are back near 2019 levels. Trainline’s investments are paying off with rising e-ticket penetration and growth in its software division. Train tourism has returned on the continent as well. Sales are up 26 per cent led by Italy and Spain.

True, UK season ticket sales have collapsed to two-fifths of pre-pandemic levels as the commuting week shortened to three days. But commuters are not typical Trainline customers. If anything, greater advance tickets (for work) sales suggest benefits from the shift in working patterns. Index-linked prices and good network effects bolster Trainline’s defensive characteristics. 

Better cash flow means debt has reduced. Net of £57mn of cash, debt stood at £96mn in February or 2.5 times as a ratio of ebitda. Trainline earnings per share and revenues should accelerate over the next two years. But it is the lack of reform to Britain’s convoluted ticketing system that offers the fuel for Trainline’s growth engine.