On Monday, UBS revised its stance on Trainline Plc (LON:TRNT) (TRN:LN) (OTC: TNLIY), changing the stock's rating from Buy to Neutral, while simultaneously increasing the price target to GBP4.90, up from the previous GBP4.10.
This adjustment reflects a more cautious outlook on the near-term growth prospects of the company despite acknowledging its strong recent performance and improved profitability expectations.
According to InvestingPro data, the $2.4B market cap company maintains a "GREAT" financial health score, with analysis suggesting the stock is currently trading below its Fair Value.
The firm recognized Trainline's robust commercial momentum as evidenced by its half-year results, which not only showed strong commercial traction but also led to an upward revision in the company's guidance. The company's impressive 78.29% gross profit margin and 19.44% revenue growth highlight this strong performance.
This, according to UBS, indicates a higher than expected benefit from operating leverage. The firm also anticipates that Trainline will gain from the ongoing digitalization of the UK's rail system and the intensifying competition in the European high-speed rail sector.
Despite these positive indicators, UBS suggests that the UK market appears to have fully recovered, which may lead to a deceleration in the pace of ticket sales growth in the near term. The firm also expressed skepticism about the emergence of significant competition in France before fiscal years 2027/28, which could limit Trainline's growth in the French market in the immediate future.
The price target increase to 490p is primarily driven by UBS's expectations for Trainline's higher profitability. This revised price target suggests a more optimistic view of the company's financial performance going forward, even as the stock's rating has been tempered to Neutral, indicating a more conservative expectation of the stock's market performance in the short term.
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