All trading involves risk. Losses can exceed deposits.

National Express rolls ahead

Recent trading has propelled National Express to highs not seen since March, but unless they can break above their current levels they might slip back lower.

All trading involves risk. Losses can exceed deposits.

The most recent trading update said that revenue was up 7% in constant currency terms, with all five divisions seeing growth. Strict cost controls came into play, helping the company to improve revenue trends. The company was not entirely immune from the eurozone crisis, with its operations in Spain coming under pressure; however, new contracts and the decision to increase fares meant that the division was able to weather the storm.1

In addition, the contract pipeline (i.e. the number of new contracts to be implemented within the next year) is increasing, which suggests that the company will continue to see operations broaden during the coming months.2

National Express shares have not been the most exciting to watch over the past year or so. Since the beginning of June, however, they have made an impressive advance, rising by around 15% to a high of almost 230p. It seems that the group has managed to weather the problems in its various markets quite well, and although growth in the UK is slow and in Spain is almost non-existent, the US is doing much better. The world’s largest economy is outpacing a Europe weighed down by a currency crisis and high unemployment that is putting a stranglehold on economic growth.

At current valuations, National Express has much to commend it. A PE of 12.17 shows that the company is not overvalued on an earnings basis. Meanwhile, income hunters will be pleased by the healthy 4.2% yield on offer.3

For those looking for direct capital growth, however, a period of caution is advised. We have been around these levels (c. 230p, point 1 on the chart) once before with National Express, in early March of this year, and a failure to break above this level caused the shares to drop back precipitously. I think the outlook for the shares remains strong, but traders will probably prefer to wait to see if they can hold 230p on a daily chart (point 2).4

National Express Group chart

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