Kelsian biding its time, considering a competing bid for UK’s Go-Ahead Group

Kelsian is building a portfolio of transport plays with built-in inflationary defences, with a possible UK takeover target ticking a few boxes for the Aussie operator.

The chief executive of ASX-listed Kelsian, Clint Feuerherdt, says a tilt at a company like Britain’s Go-Ahead would give the local operator “immense” access to the major European market.

But he remains coy on whether Kelsian will return with another tilt for the London Stock Exchange-listed company.

Earlier this month Kelsian said it had been trumped in its bid to buy Go-Ahead by a consortium of Australia’s Kinetic and Spain’s Globalvia Inversiones.

While Go-Ahead has accepted the consortium’s $1.5bn offer, the British firm’s stock is currently trading well above that price, and Kelsian has the ability to make a competing offer at any time before the scheme of arrangement comes into force. Kelsian told the ASX on June 14 that it had been in preliminary discussions with Go-Ahead in relation to a possible takeover proposal, which would likely have been a cash bid.

It also urged Go-Ahead shareholders to take no action with regard to the bid, and talked up the potential of creating an international leader in mass transit should a combination be pursued.

Mr Feuerherdt told The Australian this week that the Adelaide-based company was keeping its options open, but that a large acquisition in the region, with strong organic growth potential, made sense.

“We haven’t said whether we are or we aren’t pursuing Go-Ahead,’’ Mr Feuerherdt said. “We said we’re taking a look at it and assessing our options.’’

But Mr Feuerherdt said Kelsian had been operating in the British market for a decade, “and it’s a market that is undergoing and excited about the change, as it basically re-regulates itself”.

“And it gives you immense access into the liberalising European public transport market.’’

Mr Feuerherdt said the European Union had a directive in place to transition all public transport contracts into the private sector in the next few years, probably on similar terms to the inflation-linked contracts the company enjoyed in Australia and Singapore.

Making a substantial purchase in the British market would provide “a meaningful platform from which to access an advanced pipeline of organic growth opportunities’’, he said.

Mr Feuerherdt said Kelsian was starting to reach its market share limits in some of its Australian jurisdictions, such as Perth where it had hit the legislated cap of 50 per cent market share, Adelaide where it had about 85 per cent of the public transport market, and to a lesser extent in Sydney and Melbourne, where there was still some room to grow.

“We could start capping out in Australia, which is why we’ve been quite clear on the necessity to get beachheads in other countries,’’ he said.

“So we did that in Singapore successfully. We did it in the UK – we’ve been there for 10 years.

“We use (M&A) selectively to get a meaningful position in a new market that unlocks … organic growth. It’s the same model we try to replicate elsewhere, searching for similar contracts that provide the same sort of risk protection as we had in Australia.’’

Mr Feuerherdt said a strength of the business as the world entered an inflationary phase was that more than 80 per cent of its revenues were contracted or non-discretionary, with the contract terms linked to increases in fuel costs, labour costs and inflation.

“We’ve got a portfolio of assets that more than 80 per cent is underpinned by a government contract with pure indexation,’’ he said, adding that the sector was increasingly becoming an ESG play as the fleet electrified.

“When you think about the way cities need to decarbonise, the only way they’re going to do that is through greater use of public transport and decarbonising the public transport network itself,’’ Mr Feuerherdt said.

“So there’s this big, big weight of money coming down the line on converting all the fleet to electric, but not only that, delivering a much better public transport network so that people get out of their cars and back onto the public transport network.

“And generally the way you do that is through frequency and just making it much more attractive proposition when you make a choice between a car and a bus.’’

Mr Feuerherdt said the pandemic period had been useful in a sense, as it had demonstrated to investors the defensive nature of Kelsian’s contract portfolio, “because all public transport networks continued to operate’’.

“I think the big change that’s occurred over the last few years is the recognition that what we do is essential infrastructure,” he said.