Trainline

(TRN) 325p

Market cap:  £1.49 billion

After a hesitant start to life as a public company we think Trainline (TRN) is firmly on track for growth and investors should buy into the momentum.

The shares enjoyed a resurgence at the end of 2023 rising as much as 22% to 349p in one day after the UK government said it would not create its own ‘Great British Railways’ ticket retailing website and app.

This came as a great relief to Trainline and its shareholders, as were it to go ahead it would have created a direct competitor and threatened market share.

Now the way is clear for the market to focus on the growth opportunity ahead of the company in the UK and, increasingly, continental Europe.

The company makes money by earning a commission and fees on ticket sales and generating revenue from advertising and ancillary services like insurance.

WHAT HAS RECENT TRADING BEEN LIKE?

In September 2023, Trainline reported better-than-expected first-half results and announced a maiden £50 million buyback.

Group net ticket sales for the six months to 31 August were up 23% to £2.65 billion and the company remains popular with commuters and day-trippers preferring to book online rather than visiting their local ticket office. Operating free cash flow was £77 million, up £48 million year-on-year.

For the full year to February 2024 the company tightened its group guidance towards the upper end of the range with adjusted earnings before interest taxation depreciation and amortisation (EBITDA) of between 2.15% and 2.25% of net ticket sales.

In November, Trainline raised its outlook for full-year revenue growth to between 15% and 20% and for net ticket sales growth to between 17% and 22%.

GAINING MARKET SHARE IN THE UK

The firm has a 60% share of the UK online market, and a recent article by UK consumer watchdog Which? reported consumers could save over 50% by booking train tickets online through Trainline and other ticketing sites – creating a big driver for people to use the platform.

Gaining market share in the UK is not the only lever for growth – there is scope to expand further into the European market. The greater reliability and affordability of rail travel on the continent makes this a compelling opportunity.

Trainline observes its European division has achieved ‘solid double-digit revenue growth and moving towards breakeven over the medium term’.

International consumer net ticket sales increased by 24% year-on-year, but growth in Spain and Italy was closer to 50%.

Shore Capital analysts observe: ‘There is a growing market share opportunity with increased carrier competition and industry investment. Favourable up-to-date news flow in this area includes Trainline appointing Marie Lalleman as a non-executive director, who has deep knowledge of European consumer behaviour and data-driven strategy, and that Spanish rail network Renfe (as requested by the European Union) is now allowing ticketing platforms to access content and real-time data.’

INVESTING IN TECHNOLOGY TO ENHANCE CUSTOMER EXPERIENCE

Helping to future proof the business, Trainline is investing in its technology to enhance the customer experience. The company has rolled out digital season tickets and estimates almost a third of the UK rail network is fully digital season ticket enabled.

Other initiatives include a new weekly price calendar and a ‘Strike Safe’ feature telling customers whether the journey they are searching is likely to affected by rail strikes.

Trainline has also struck up partnerships with platforms like Just Park (parking), Booking.com (hotels) and Karhoo (taxis).

A key risk facing the business is a lack of barriers to entry. In the UK the company has a well-established brand and the technology and investment underpinning the platform. The former factor potentially offers less protection in Europe, where Trainline is not so entrenched, and a state-backed ticketing operation – with name recognition and potentially zero commission – could still emerge in the future.

The shares aren’t cheap at around 25 times 2025 earnings but there is scope for earnings to grow pretty rapidly from a low base, with the company only breaking into profitability in the year to February 2023. Berenberg has earnings per share increasing from 7p for that 12-month period to 12p in the current financial year. [SG]

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