Land transport operator ComfortDelGro C52 has bought back shares on the open market for the first time in more than a year. On June 14, the company acquired 86,400 shares at $1.33 each.
The last time ComfortDelGro bought back shares was on June 5, 2023, when it acquired 207,000 shares at $1.04 each. Back then, the company was actively buying back as its share price was trading at its 20-year low. Within May and June last year, ComfortDelGro bought back a total of just over 1.14 million shares at average daily prices ranging from $1.04 to $1.12.
Over the past 12 months, ComfortDelGro’s share price, which was badly hit during the pandemic, gained nearly a fifth. However, from the recent peak of as high as $1.50 in late April, the stock has lost nearly 11% to change hands at $1.34 at the close on June 18.
The recent drop could be attributed to softer-than-expected earnings growth as indicated by the company in its 1QFY2024 ended March business update. The company reported earnings of $40.6 million in 1QFY2024, up 23.8% y-o-y, marking its fourth straight quarterly improvement after the pandemic. Revenue in the same period was up 10.8% y-o-y to $1 billion, with improvement across its public transport and taxi businesses.
ComfortDelGro’s 1QFY2024 numbers drew different reactions from analysts. UOB Kay Hian’s Llelleythan Tan and Heidi Mo, citing the lack of near-term catalysts, have downgraded the stock from “buy” to “hold”, along with a reduced target price of $1.56 from $1.72.
They note that despite improved rail ridership and higher fares, the public transport segment suffered from lower contract margins in Australia and higher operating costs.
See also: Raffles Medical Group chairman ups stake to 55.592%
ComfortDelGro’s taxi segment, on the other hand, enjoyed higher commission and platform fees, although the gains were offset by lower booking volumes.
While Tan and Mo took into account how its first quarter is seasonally weaker, they note there was a q-o-q decline in revenue, core operating profit and headline patmi. They also note that 1QFY2024’s core operating margin fell 2.0 ppt q-o-q, which was a “negative surprise” given that a full quarter’s contribution from higher taxi commission rates and rail fares in 1QFY2024 would have boosted overall margins.
See also: Cortina's Lim family raises stake via married deal at $2.90 each
Separately, DBS Group Research analysts Andy Sim and Chee Zheng Feng have flagged the q-o-q dips. Nonetheless, they believe the company’s y-o-y growth trajectory should be on track in the subsequent quarters of FY2024.
The way Sim and Chee see it, 2023 and 2024 mark a strategic capital management shift for ComfortDelGro as it deploys its net cash position towards bolt-on acquisitions, each with a ticket value of more than $100 million.
“We regard the two recent acquisitions announced — A2B and CMAC — as rational. They are earnings accretive and align with ComfortDelGro’s geographical and transport domain expertise,” state Sim and Chee, as they keep their “buy” call and $1.80 target price.
Similarly, Eric Ong of Maybank Securities has reiterated his “buy” call and $1.60 target price. Given the seasonally weak first quarter, Ong deems the core patmi of $40.6 million is roughly in line with his and market expectations.
While he shares similar sentiments with the market about the slow 1QFY2024, CGS’s Ong Khang Chuen is upbeat about the group’s UK business being a bright spot in FY2024. “We expect further margin recovery for ComfortDelGro’s UK business in FY2024 on bus service fee indexation and tender environment in London remaining favourable,” he says.
In his June 20 note, RHB Bank Singapore’s Shekhar Jaiswal, who has kept his “buy” call and $1.65 price target, is similarly upbeat despite the price correction following the 1QFY2024 update. “We, along with the consensus, continue to expect a stronger 2HFY2024, which will be aided by improvements in both Singapore rail ridership and UK public transport earnings, y-o-y higher taxi earnings, and earnings contributions from its A2B and CMAC Group acquisitions.”
