Mobico Shares (LON: MCG) Drop 20% On Reported Loss

Mobico Group PLC (LON:MCG) reported a mixed performance for the first half of 2025, marked by revenue growth but tempered by operational challenges. Mobico Group, is listed on the London Stock Exchange, under the ticker MCG. Despite these hurdles, the company reaffirmed its full-year adjusted operating profit guidance, signaling confidence in its strategic direction.

Group revenue climbed 7.0% to £1.32 billion, fueled by double-digit growth in ALSA and WeDriveU. However, adjusted operating profit declined to £59.9 million, compared to £68.6 million in the first half of the previous year. This dip was attributed to temporary issues within two WeDriveU contracts. The statutory loss for the period, including discontinued operations, reached £(254.7m), largely impacted by a £(238.0m) non-cash impairment related to the North America School Bus business.

Mobico's balance sheet reflects a covenant gearing of 3.0x before accounting for the proceeds from the North America School Bus sale, with expectations to reduce this to approximately 2.5x by year-end. Free cash flow stood at £57.8 million, lower than the £96.3 million reported in the first half of 2024, primarily due to working capital timings. The company boasts ample liquidity, with no significant maturities until May 2027, a position further solidified by the proceeds from the North America School Bus divestiture.

The sale of the North America School Bus business for an enterprise value of up to $608 million (approximately £457 million) was completed after the reporting period. This move generated net upfront proceeds of $364 million (£273 million), earmarked for deleveraging and reallocation of capital away from the capital-intensive North America School Bus operations. Furthermore, the disposal is expected to trigger a non-cash release of approximately £100 million from foreign exchange reserves.

Mobico remains steadfast in its full-year outlook, projecting an adjusted operating profit from continuing operations between £180 million and £195 million, excluding the North America School Bus business.

Driver Breakdown:

• ALSA's Strength: Continued record performance and improved customer satisfaction index drive revenue growth.
• WeDriveU Challenges: Operational issues in two contracts impacted profitability in the first half.
• Strategic Divestiture: Sale of North America School Bus strengthens liquidity and focus on core operations.

The markets may react cautiously to the profit decline in the first half, but the reaffirmed full-year guidance and successful asset sale could provide some reassurance. Monitoring the integration of UK Coach operations with ALSA will be crucial.

Phil White, Mobico Group Executive Chairman, stated, “Mobico has delivered a solid performance in the first half of 2025…we remain confident of achieving our full year adjusted operating profit guidance of between £180m and £195m.” This statement reinforces the company's commitment to its financial targets despite ongoing challenges.

The strategic integration of UK Coach operations with ALSA to form a pan-European powerhouse aims to capitalize on market leadership positions and generate operating synergies and cost efficiencies. Discussions with German PTAs are progressing constructively, with a resolution anticipated in the coming months. An update focusing on ALSA's potential, cost reductions, and efficiency measures is planned before year-end.

Analyst Summary: Bull and Bear Cases

While the H1 results present a mixed bag, Mobico's strategic moves and reaffirmed guidance suggest a potential for recovery, but investors should closely monitor the execution of cost-cutting measures and the integration of its European coach operations.