Shares of National Express Group PLC (LON: NEX) rallied 9.14% on plans to buy its main UK rival Stagecoach in an all-share transaction that would value the UK bus operator at £445 million ($609 million).
The tie-up in the UK transport sector is long-overdue as both companies struggled with low passenger numbers due to the COVID-19 related lockdowns.
The easing of lockdown restrictions in the UK has resulted in rising bus and rail passenger numbers, but the figures are still very much below their pre-pandemic levels.
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Investors in both companies celebrated the news give the over 9% rally witnessed in National Express shares and the 20% rally recorded in Stagecoach stock.
From a technical perspective, today’s rally started at a crucial long-term support level, which indicates that the rally could go much further as the deal progresses towards final closure.
Unlike Stagecoach, National Express has international operations in Spain, the United States and Germany. However, the company’s operations have been struggling in all countries due to the coronavirus pandemic lockdowns.
The two companies have been receiving support from the British government in the UK, which is set to end in the next few months. They will have to ensure that their operations generate positive cash flow and are headed towards profitability.
Stagecoach has shrunk its operations in recent years after failing to win three consecutive rail concessions with the UK government that saw the company pull out of the UK rail business.
The company also sold its US business division for £214 million in 2018 to redirect its focus solely to the UK, leaving it with a smaller business than National Express.
Traders looking to establish long positions in National Express should watch the current support level, which should provide plenty of opportunities if it holds going forward.
*This is not investment advice.
NEX share price.
NEX shares surged 9.14% to trade at 245.10p, rising from Monday’s closing price of 222.7p.
