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(Sharecast News) - The value of UK transport company Mobico was almost halved on Friday after a warning that annual earnings would be at the lower end of guidance, completely overshadowing the sale of its North America school bus business to I Squared Capital for up to $608m (457m).
Guidance for 2024 adjusted operating earnings is pencilled in at 185m - 205m. Mobico said it expected to deliver a "significant" statutory loss due to goodwill write-offs, derecognition of deferred tax assets and further onerous contract provisions relating to its German business.
Shares in the firm, formerly known as National Express, hit the skids early and were down 40% in London trade. The stock, which was at 467p just before the Covid pandemic struck, was languishing at 34p on Friday with a market capitalisation of around 219m compared with 2.4bn at the end of December 2019.
Mobico expects upfront net proceeds of up to 385m from the North America sale which will be used to cut debt and fund growth opportunities, particularly in the Spanish public transport operator Alsa, and an earn-out of up to $70m depending on future performance.
"Whilst school bus has demonstrated its recovery from the (Covid) pandemic's effects, it continues to require significant maintenance and growth capital investment and has experienced persistent market challenges such as driver wage inflation and, more recently, potential fleet cost inflation from new tariffs," the company said in a statement.
I Squared Capital is an infrastructure investor which owns the UK trains and bus operator Arriva.
The deal comes 18 months after Mobico started preparing to offload the business to cut its debt burden on more than 1bn. The company said that between 2022 and 2024 the business had drawn in 200m of capital investment "without generating meaningful positive free cashflow to support group deleveraging".
It will still maintain a presence in the region via its WeDriveU transit and shuttle business, adding that it had been "successfully carved out and separated as part of the sales process to be able to report as a standalone business".
Mobico said the school business would be expected to contribute about 9m to group operating profits for past year, or about 5% and chief executive Ignacio Garat said the board was "continuing to review options to further accelerate debt reduction and deleveraging".
AJ Bell investment director Russ Mould said if Mobico's latest update was one of the company's coaches "it would be sent straight to the scrap yard", adding that the price achieved for the US school bus business was less than expected.
"There is a growing list of negative factors putting Mobico in the slow lane. Long-running issues coming out of the pandemic have hurt the company; a lacklustre corporate rebrand of National Express seems to have gained limited traction and last March, results had to be delayed thanks to audit issues."
Reporting by Frank Prenesti for Sharecast.com