FTSE350: Passengers still dragging their feet

It is also a time of great opportunity, however – and reform is in the air. In its annual results, National Express (NEX) bigged up its environmental, social, and governance (ESG) credentials, predicting a “modal shift” to shared mobility. Analysts at Liberum suggest that rising fuel prices will also push cost-conscious drivers towards public transport. (National Express itself has fully hedged 2022’s fuel requirements, while 63 per cent of FirstGroup’s (FGP) UK crude requirements are hedged until March 2023.)

The government is on the same page as investors here. The Department for Transport’s ‘Bus Back Better’ scheme is designed to get more people onto public transport and improve connectivity.

However, government interest could get a little stifling. Levelling up and housing secretary Michael Gove has promised to support any local transport authority that wants to access franchising powers, and some are taking up the offer. In Greater Manchester, for example, buses are being brought back under public control after 35 years of private operators running the show.

The big fear for bus companies now is that franchising will lead to significantly lower profits. Profit margins in regional markets are typically much higher than in London, where Transport for London already specifies routes, timetables and fares.

While carting people around has been difficult of late, moving parcels from A to B has proved more lucrative. Royal Mail (RMG) reported a sharp rise in profits in November, and intends to return £400mn to shareholders via special dividends and share buybacks. 

However, the group is under another kind of pressure. According to its latest accounts, staff costs make up almost 70 per cent of its operating costs, meaning wage inflation could prove dangerous. While it has driven down these costs – and has plans to axe 700 more jobs – narrower margins could still hamper its modernisation plans. 

Shipping is plagued by fewer worries. Shipbroker Clarkson (CKN) reported a record performance in March, with supply-demand constraints buoying up freight rates. With a robust forward order book of $165mn and free cash flow of almost £100mn, it is on course for excellent growth.