Bus operator Kelsian belted after failing to deliver

Bus operator Kelsian was belted by investors on Wednesday. Picture: John Appleyard

Kelsian’s plan to target selective bolt-on acquisitions that meet return hurdles and enhance existing operations looks like wishful thinking for the bus operator that was belted by the market on Wednesday after delivering its numbers.

Shares ended the day down by more than 15 per cent, with its market value at $832m, as it became yet another company where investors have punished the stock for failing to deliver on transformational mergers and acquisitions.

Kelsian reported a 28.6 per cent fall in its net profit for the six months to December to $20m, from $28m on the previous corresponding period.

It’s been a thematic running throughout this month’s reporting season, with the latest to be slammed when handing down results after major deals being Viva Energy, down about 25 per cent on the day. It bought On The Run fuel shops for $1.15bn in 2023, only to tell the market this week of earnings weakness in that part of the business due to cost-of-living pressures.

Now, with a market value of almost $3bn and debt of $1.8bn, there are real fears Viva Energy may need to raise equity, although the company calmed any concerns around this while fielding analyst questions.

Meanwhile, with Kelsian’s market value taking such a hammering, one would normally think this would make it a takeover target. But currently, all the groups that would be likely buyers have troubles of their own.

Global bus and rail operator Kinetic has been on the market for months through Macquarie Capital, and yet sources have told this column that the majority of buyer interest was for one part of the company – the UK arm – rather than the business as a whole.

Complicating matters has been that the various owners of Kinetic, Canada’s OPTrust and Foresight Group, are not thought to be on the same page, with one out for top dollar and the other keen to exit. Apparently the plan now is to find a buyer for just the Australian assets.

Kohlberg Kravis Roberts bought New Zealand bus operator Ritchies in 2021 but sources say the investment is not currently tracking as well as hoped.

Companies that had government bus contracts such as Kelsian, which has contracts through its Transit Systems business, have been in hot demand by investors due to their defensive nature.

But what has been lost is that any transport-related companies have high capital costs and safety risks, and rely on winning competitive tenders for contracts.

Market analysts say the main problem with the Kelsian result is that the company has over-promised but under-delivered.

Any plans to embark on more deals would almost certainly have to be on the backburner until the company could improve its performance.

In 2023 it bought bus services provider All Aboard America for $487m but some analysts say now that deal is looking questionable, with its performance appearing to be going backwards.

Shareholders did not like it that the group said its earnings before interest, tax, depreciation and amortisation for 2025 of between $283m to $295m would have a “skew to the second half”.

Kelsian also bid strongly in 2022 to buy Go-Ahead in the UK, but missed out to Kinetic which paid $1.5bn for the group.

Some say the sell-off on Wednesday could partly be attributed to an exit by growth investors, paving way for value investors to put money into the stock.

Should performance continue to deteriorate, then a break-up of Kelsian is possible, where suitors cherry pick the best assets, which in Kelsian’s case is considered its SeaLink Marine and Tourism unit.

Those who know the company well say Kelsian’s job now is focusing on running the business well and improving cash flow, as given the share price reaction on Wednesday it’s clearly unable to raise any more money in the near term for growth options.