Picture supply: Getty Photos
The pound has fallen sharply in opposition to the US greenback in latest weeks. Many FTSE 250 shares have been beneath stress as buyers fear about geopolitics, potential commerce tariffs, and home development.
The US greenback has continued to rise as buyers wager that the US Federal Reserve will preserve rates of interest greater for longer. This, coupled with issues over home financial development within the UK, means we’re seeing sterling beneath stress.
Nonetheless, when the pound weakens, UK corporations with vital offshore earnings can do effectively. Trainline (LSE: TRN) is among the FTSE 250 shares that I feel could possibly be a beneficiary.
What does Trainline do?
Trainline is a number one on-line platform for prepare and coach ticketing companies throughout Europe. Whereas it has a robust presence within the UK, Europe represents a key development market given the sheer variety of journeys taken on the mainland.
In its half-year outcomes to 31 August, Tranline reported an 18% improve in first half transactions to over 110m. This helped increase Trainline’s web ticket gross sales by 14% yr on yr to £3bn. Adjusted earnings earlier than curiosity, tax, depreciation, and amortisation (EBITDA) grew by 44% to £82m. A rising share of the corporate’s income now comes from worldwide markets, decreasing its reliance on the UK economic system.
Valuation
The corporate’s share value has been unstable over the previous yr, climbing 11.5% to £3.64 per share as I write on 27 January. Nearly all of these good points got here within the closing quarter following its outcomes launch, which included a second revenue improve within the area of two months.
The corporate’s inventory trades at a trailing price-to-earnings (P/E) ratio of round 31. That’s effectively above the FTSE 250 common of 13. I feel the important thing right here is how effectively the corporate can scale its enterprise mannequin and continue to grow its revenues.
Beneficiary of weaker sterling?
Trainline is kind of clearly specializing in Europe as a development market. A good portion of its income is generated in euros, which may translate into greater native foreign money income when sterling weakens.
One other defensive high quality is the group’s comparatively restricted publicity to the US. Whereas buyers are involved about tariffs and different limitations for overseas corporations within the US beneath the brand new administration, I feel Trainline is comparatively effectively insulated from these.
After all, it’s not all sunshine and rainbows. The corporate is consumer-facing and depends on the well being of the patron and journey business. It continues to achieve market share within the commuter phase, which is a constructive, however there are giant dangers to development from each shopper spending reductions and potential new laws within the UK.
Verdict
Trainline’s worldwide publicity and development potential in Europe go away it well-placed to learn from weaker sterling. Nonetheless, the inventory isn’t one which I’ll be shopping for proper now.
The P/E ratio does look fairly excessive sufficient given the consumer-facing nature of its operations and fierce competitors. Whereas weaker sterling is on my thoughts in the intervening time, I’m investing with not less than a 3- to 5-year horizon. Given the place I feel we’re at within the financial cycle, I’m in search of extra defensive publicity in industries like prescribed drugs once I get some spare funds.
