When it comes to investing in the stock market, it is usually thought better to travel than to arrive. Those travelling with National Express, the London-listed bus and rail company, can only hope this does not apply in their case. The travelling lately has been so bumpy as to make even those with the strongest stomachs feel queasy.

Problems have come to National Express in the manner of a motorway pile-up rather than a straightforward crash. It has fallen out with one of its main clients, and since that client is the UK Government, it could hardly have chosen a worse or more powerful opponent. Its biggest shareholder, the Cosmen family, is none too pleased either, as comments late last week testified. In addition, the company has landed itself with borrowings that, thanks in part to the falling share price, are twice as high as its market value. Moreover, there is a pension fund deficit and no dividend to comfort investors through the nastiness. Meanwhile, swings in foreign exchange rates are another headache since the company operates school buses in the US as well as having a Spanish arm. More worries come in the shape of the oil price. The cost of the fuel it must buy to keep its coaches on the road has moderated lately, but the potential of painful volatility remains.

To cap it all, the chief executive of National Express, Richard Bowker, the man who once ran the pseudo-regulatory Strategic Rail Authority, left under a rather dark cloud last June and the company has yet to appoint a replacement.

Glimmers of hope have shone, intermittently, as summer turned to autumn. Shareholders had good reason to believe that they might be rescued by one of several potential acquisitors. First Group had a sniff, as did a consortium including CVC, the venture capital house, the Cosmen family, the 18 per cent shareholder in National Express, and Stagecoach. Stagecoach then positioned itself to bid on its own, and while it might come back, there is no certainty it will. Without a rescuer, shareholders face the unenviable likelihood of having to inject fresh cash via a rights issue.

To restore order to this company’s over-choked balance sheet, shareholders may have to find £2 for every £3 worth of shares they hold, and since it is far from certain that shares in National Express worth £3 today will be worth £3 at Christmas, it is a prospect that investors anticipate with unease. The sabre-rattling by Cosmen raises doubts about whether it is feasible to hold a rights issue at all.

An ill-timed decision to pay top dollar, in 2006 and 2007, for Spanish bus assets set National Express on the road that some fear will lead to ruin. Its acquisition of the right to run the East Coast rail franchises, operating the London to Edinburgh route among others, put another spanner in the works. When National Express won the franchise, rail passenger numbers were climbing and the outlook was rosy. Costings that once looked reasonable subsequently looked way off-beam. Recession made it a good deal harder for National Express to stack up the numbers and, believing that the ten-year contract with the Government was little more than a licence to lose money, the company says it allowed the contract to lapse. Others say that the Government stripped it of the right to run trains out of King’s Cross.

Whichever way you look at it, National Express found itself on the hook for at least £50 million of penalties. That may be much less than would have gone down the drain in the longer term if it had kept the franchise, but it also faces the threat of losing its two other rail franchises — East Anglia and c2c — which are profitable for National Express because they are subject to different timings and contractual small print.

So, a driverless train moving inexorably towards the buffers? A bus careering out of control down a slippery mountain of debt? Perhaps. Another investment adage recommends that even adventurous investors should avoid companies that have both financial and operational risks, and for that reason National Express may well be one to leave well alone.

That there are financial risks is beyond doubt. The operational risks, however, may be smaller than it seems. Barring unforeseen circumstances and some shouting, the East Coast franchise is history. If National Express lost the other rail contracts, it would hurt, but operating profits from the bus businesses — in the UK, in Spain, and in the US — cover the interest bill three times over. That ratio could be a lot worse.

In John Devaney, the executive chairman, shareholders have a leader well used to sticky situations — he created some semblance of order out of the wreckage of Marconi, for instance. It would be good to see a new chief executive, but it may be better if the new broom comes in when the refinancing, if it comes, is completed and when the heat has drained out of the rail franchise arguments.

Underneath is a solid bus business, and though the outlook is fogged with uncertainty, shares trade at between about five and nine times earnings and that smacks more of a bargain than a basket case. Buy.

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