Taking a slightly sideways view of Carillion's demise, it may have implications for the bus sector. This is an industry that is largely operated by a handful of dominant players. As of today, The First Group, Go-Ahead and Stagecoach are all heavily indebted and all are being shorted by hedge funds. This leads me on to Rotala (LSE:ROL), a very well established and profitable bus company that views the recently enacted Bus Services Act 2017 as a huge opening for its development.
Essentially, the Bus Services Act allows areas that have opted for an elected mayor to work in partnership with bus companies to improve local transport. However, those local authorities cannot set up their own bus companies. Whatever choices are made will require working with private operators such as Rotala. The Act will allow authorities to put bus routes out to tender. That is to say, to refranchise.
If one looks at the three main hubs operated by Rotala, those areas are dominated by the big bus companies. Combined they have a market share of some 70%. Most of these companies have considerable levels of debt and, of course, some are being shorted by hedge funds. I would suggest that in the current environment, the Government is mindful of potentially unstable suppliers of key services. The Bus Services Act may be the catalyst that Rotala has been looking for. Incidentally, I hold the stock.
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Rotala Plc operates commercial and subsidized bus routes for businesses, local authorities, the public and private individuals. The Company is engaged in the provision of bus services. The Company offers contracted, commercial and charter services. Its contracted operations service two types of customers, including individual organizations and local authorities. The Company offers commercial services in the West Midlands, the South West and the North West. The Company also provides a transport management service to a range of customers. Typically this covers business or service disruption, and event management. The Company operates approximately 600 vehicles. The Company's registered bus services carry over 29,000,000 passengers every year. In addition, it operates a range of corporate transport contracts and private bus networks. The Company's operations are across areas in the United Kingdom, including West Midlands, Worcestershire, South West, North West and London. more »
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It seems to have gone unnoticed that the CEO, Deputy Chairman and an NED have purchased some 186,030 Rotala (LON:ROL) shares this month. The company stands to benefit from the reforms created by the Bus Services Act 2017. It has also hedged almost all its 2018 oil demands. It's unclear whether its rivals have done the same.
The company will be presenting at a ShareSoc event at Birmingham on 1st May 2018. It could be worth closer scrutiny.
There is an interesting piece in The Economist (February 2nd 2019) in which it goes into some detail about the prospect for re-regulating some parts of the UK's bus services. In particular, it points to a study that has recently been authorised by the Greater Manchester Combined Authority to look at reforming the current bus system for Greater Manchester. Basically, it argues that Andy Burnham, the City's mayor, is keen to get people back into using the bus service and to arrest declining passenger numbers.
A key factor in falling bus usage appears to be slowness. The bus system seems to require initiatives such as bus lanes, or at least priority over other traffic, in order to work more effectively. So this will not be, in my opinion, a huge overnight change. But it may signal longer-term developments.
The point that I am really making is that Rotala could be a big beneficiary of these changes if re-regulation takes hold. And sitting in the background is the concept of Transport as a Service. Most passenger vehicles are idle most of the time. The current transport model simply does not make economic sense. Providing rail links, overground or underground, is incredibly expensive and time-consuming. A radical overhaul of the bus system is, by contrast, quite fast and cheap.
By the way, I no longer hold any stock in Rotala.