Trainline is set to pull into the IPO station, should investors buy their tickets?

Trainline, the company with a train booking app is coming to the market, probably. Should investors hop on board?

Article updated: 5 June 2019 10:00am Author: Michael Baxter

Trainline, currently owned by private equity outfit, KKR, is planning an IPO, unless, that is, someone comes along with a better offer. I hope they don’t. There are not enough British techs listed on the stock market, and I am looking forward to this one. Reports suggest that Trainline will be valued at £1.5 billion, making it one of those unicorns, a common beast in the US, much rarer in the UK.

What I like about Trainline is another novelty. For once, this is a tech that is profitable before IPO — it made an underlying profit of £10.5 million in the year to February. That from ticket sales of £3.2 billion.

What I also like about Trainline is that it has lots of potential too.

What vexes me is that as a general rule, it seems that an IPO is not the optimal time to buy into a company. As Warren Buffett said: “The idea of saying the best place in the world I could put my money is something where all the selling incentives are there, commissions are higher, the animal spirits are rising, that that's going to better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn't make any sense.”

The Sage of Omaha was not suggesting all IPOs are bad, merely that a cold hard look at the facts suggests that they don’t represent the optimal time to buy.

Take Facebook as an example. Sure, shares have risen almost five-fold since the 2012 float, but post IPO, its shares fell. If you had bought in November 2012, when this column went bullish on the stock and some six months after float, then right now you would have increased your capital nine-fold.

On the other hand, the lowest share price ever seen with Google was the IPO price. Today shares are up 20-fold. Not only that, at the time, Mr Buffett was pretty bearish on the stock.

It seems remarkable to me that Berkshire Hathaway has performed so well over the last decade, despite largely ignoring the single most impressive sector over this period — namely techs.

As for Trainline, what is especially interesting about this company is competition, or rather, lack of it. When it reported on the planned IPO, the BBC stated: “The market for online train tickets is not particularly crowded.” 

Indeed, it bought out one rival, French company Captain Train, around two years ago.

The Trainline service is currently available in 45 countries, but it’s the UK where it focuses.

It is raising £75 million from the IPO which will help fund its overseas expansion. There is a lot of potential, me thinks.

But I also wonder whether the Trainline model could be applied in other related sectors — booking buses, planes, and in the world that is emerging, booking autonomous taxis, flying cars and hyperloop.

And that takes me to its potential rival of the future — Uber.

Interestingly, while the Uber share price fell post its May IPO, it has since recovered, and is now back to roughly the IPO price.

But long-term, Trainline and Uber could end up in competition. There is one big difference: Uber often owns the vehicles for which it provides the booking engine. This is at once a strength — high asset base and increased barriers to entry from competition — and a weakness — making it less agile, more attached to business models that may not always work.

There is but one gripe I have about Trainline — it means I often have to stand on the train. I rarely book seats when I travel, like millions of others, I buy train tickets the old fashioned way. This means when you get on a train, you see a sea of reserved seats, most of which don’t get claimed. So picking a seat is a game of chance. Mostly I get lucky, and don’t get asked to get up and make way for the rightful custodian of the seat — not always. The other day, I witnessed a very old man, being asked to vacate his seat on a very crowded train.

I don’t like it, it makes people who have not reserved a seat feel like third class travellers, but that isn’t a reason to shun the shares.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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