Urbanization And Low-Emission Fleets Will Transform Mass Transit

Key Takeaways

• Rapid redeployment of capital and ALSA's expansion strategy could drive outperformance in recurring revenue, margin growth, and large contract wins across new regions.
  
• Leadership in zero-emission fleets and integrated European operations positions Mobico for amplified green funding access, efficiency gains, and sustained passenger growth driven by urban mobility trends.
  
• Structural challenges, rising costs, and changing market dynamics threaten Mobico's profitability, while underinvestment in fleet modernization exposes it to significant future financial pressures.

Catalysts

Designs, mobilizes, and operates transport services worldwide.

• While analysts broadly agree that divesting the North America School Bus business frees up capital for ALSA and WeDriveU, the market may be underestimating just how quickly this redeployment will enable Mobico to outpace peers in profitable asset-light contract wins, delivering an accelerated and above-consensus boost to recurring revenue and net margins.
  
• The consensus highlights ALSA's diversification and international expansion potential, but the winning of multi-year, high-value contracts like the EUR 500 million Saudi Arabia project could act as a game-changer, creating a step-change in group revenue growth and showcasing the replicability of ALSA's model across new regions and sectors.
  
• The operational integration of ALSA and UK Coach into a pan-European network-beyond best-practice sharing-sets the foundation for Mobico to leverage cross-border travel demand, digital ticketing, and scale-driven efficiencies, sharply improving occupancy rates, cost base, and group EBITDA.
  
• Mobico stands to benefit disproportionately from structural shifts in urban mobility policy and consumer preferences away from private car ownership, meaning underlying passenger growth may be substantially above macro forecasts, leading to persistent, compounding fare revenue gains in its core markets.
  
• The company's early leadership in zero-emission fleet investments and expertise in tech-driven operational optimization will uniquely position it for outsized access to green funding, public contracts, and regulatory incentives, enabling superior margin expansion and long-term free cash flow growth compared to competitors.

Mobico Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Mobico Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Mobico Group's revenue will decrease by 4.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -23.2% today to 6.4% in 3 years time.
• The bullish analysts expect earnings to reach £198.9 million (and earnings per share of £0.2) by about September 2028, up from £-811.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 5.0x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the GB Transportation industry at 9.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.94%, as per the Simply Wall St company report.

Mobico Group Future Earnings Per Share Growth

Risks

• Persistent underperformance in key divisions outside of ALSA, such as U.K. Bus, U.K. Coach, and German Rail, indicates structural challenges in converting revenue growth into profit, which puts future margins and earnings at risk if these trends continue.
  
• Highly competitive environments in core markets, including increased price competition and the entry of disruptors that cream off the most profitable routes, are pressuring ticket yields and could lead to stagnating or declining revenue and lower net margins.
  
• Long-term secular decline in traditional commuting demand from remote work trends and the rise of alternative mobility choices threaten to structurally depress ridership and revenue growth for Mobico's public transport services in mature markets.
  
• Heavy reliance on labor in an industry facing persistent driver shortages, increasing wage pressures, and regulatory risks in key regions means that Mobico's cost base will likely continue to rise, squeezing profits and reducing the company's ability to increase earnings even if revenues grow.
  
• The group's history of underinvestment in fleet modernization and delayed progress on fleet decarbonization exposes Mobico to large future capital expenditure needs as environmental standards tighten, which could compress returns on capital and impair future free cash flow available for shareholders.

Valuation

• The assumed bullish price target for Mobico Group is £1.13, which represents two standard deviations above the consensus price target of £0.51. This valuation is based on what can be assumed as the expectations of Mobico Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.2, and the most bearish reporting a price target of just £0.3.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be £3.1 billion, earnings will come to £198.9 million, and it would be trading on a PE ratio of 5.0x, assuming you use a discount rate of 12.9%.
  
• Given the current share price of £0.27, the bullish analyst price target of £1.13 is 76.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.