Trainline has successfully floated on the Main Market and raised cash to reduce its borrowings. It should be eligible to go into the FTSE 250 index in the next changes in September.
Trainline dominates online train and coach ticket sales in the UK and commission rates are determined by the train and coach operators making it difficult for competition to compete on price. Investment in technology and analysis of data help the company to grow its revenues and market share.
There were 240.1 million shares sold by existing shareholders with most of the cash going to KKR, which still owns one-third of the company. They raised a total of £811m net of expenses.
Revenues are increasing thanks to higher ticket volume, but this is partly offset by falling average transaction values.
Trainline believes it can achieve revenue growth in the high teens and this should help to significantly boost profitability, with the loss-making international business expected to breakeven within three years.
This is a growing market, both online and mobile, but the valuation is no bargain. The company is valued at more than 120 times last year’s operating profit – at the flotation price. The share price has risen in early dealings before the official dealings start on Wednesday.
Trainline (LON: TLN)
Train ticket platform operator
Flotation date: 26 June 2019
Issue price: 350p
Amount raised: £110.3m
Market capitalisation: £1,682m
Sponsors: JP Morgan / Morgan Stanley
What does it do?
Trainline.com is focused on rail and long-distance coach ticket sales. The business is predominantly focused on the UK, but international operations do contribute to revenues, although they are loss-making.
Trainline was formed by Virgin Rail in 1997 and sold to Exponent in 2006. It has an independent lice from the ATOC. There are three divisions: UK consumer, international consumers and business clients. The majority of revenues come from UK consumers and it is growing faster than the business division. International is growing rapidly from a low base.
The global market is huge. The top five European markets – the UK is fifth largest – are all growing. Growth in online ticket sales is even faster with an estimated annual growth rate of 10% for the period between 2017 to 2022.
Trainline covers operators responsible for 80% of European rail and 50% of coach travel by ticket sales. The US could be added in the near future. Building even a small market share should make the business highly profitable.
In April 2016, Captain Train was bought for £110.8m and this has helped to supplement organic growth, provide access to technology and progress the move into the European market.
Competition comes from rival online platforms and the train operating companies’ own websites. There are also some online travel agents that supply rail and coach tickets. Trainline has more than seven times more website visits compared with the nearest rail ticketing specialist. Trainline dominates the downloads of mobile apps. eTickets currently account for 61% of all journeys booked through Trainline.
Revenues have grown consistently from £152.7m in the year to February 2017 to £209.5m last year. Trainline remains loss-making, although that is partly due to the high interest charges. There was an underlying operating profit of £13.7m for 2018-19. The UK is profitable but international operations continue to lose money.
Net debt was £175m at the end of February 2019, which is slightly lower than the previous year.
Pro forma net debt falls to £93.8m, following the receipt of net placing proceeds of £93.1m.
Cash generation is strong because customers pay Trainline before it has to pay the train and coach companies. Investment in technology is increasing and it reached £32.4m last year.
Douglas McCallum is non-executive chair and he is a former managing director of eBay UK. He was also on the Ocado board.
Annual fee: £240,000
Clare Gilmartin is chief executive and she has been in the position since 2014. She is also a former executive at eBay.
Annual salary: £575,000
Shaun McCabe is finance director and he was previously international director of ASOS. He is a non-executive of AO World.
Annual salary: £400,000
Brian McBride is senior independent non-executive. He is a former chairman of ASOS. He is currently senior non-executive at AO World and non-executive of online cycling retailer WiggleCRC.
Annual fee: £70,000
Duncan Tatton-Brown is an independent non-executive and is also finance director of Ocado.
Annual fee: £75,000
Kjersti Wiklund is an independent non-executive of Trainline, as well as of Babcock International and Spectris. She has previously worked for telecoms companies, including Vodafone.
Annual fee: £75,000
Philipp Freise is a non-executive and KKR’s board representative on the board.
Annual fee: nil
Franziska Kayser is a non-executive and KKR’s representative on the board
Annual fee: nil
KKR is reducing its stake from 79.2% to 33.3%, while the employee benefit trust reduced its stake from 4.3% to 2.1%. KKR raised £685m from share sales and the EBT raised £31.8m.
Directors Douglas McCallum, Clare Gilmartin and Shaun McCabe all sold shares in the flotation. They still own 3%. The other directors do not own any shares.
Baillie Gifford funds have taken a 11.9% stake, while Black Rock has 3.6%. Merian Global, T Rowe Price and Capital World Investors each owns 3%.