Brian Souter faces takeover questions

Published on Saturday 19 June 2010 15:04

STAGECOACH chief executive Brian Souter is likely to be quizzed on whether he remains keen on acquisitions in a consolidating transport sector when the Perth-based group posts its annual results this week.

Souter unsuccessfully tried to engineer a carve-up of rival National Express's business last year with the Spanish Cosmen family and private equity group CVC.

If it had been successful, Stagecoach stood to take over National's UK bus and rail operations, but the approach was successfully rebuffed and National launched a 358 million rights issue instead.

But analysts say Stagecoach remains the best capitalised transport group in a largely indebted sector and could well afford acquisitions.

Paul Hickman at broker KBC Peel Hunt said: "One of the attractions of Stagecoach is that it has a strong balance sheet compared to some of its rivals. Souter has made it clear that he is interested in making some potentially large acquisitions. Any clue on that this week would be welcome."

Stagecoach, whose rail services include Britain's biggest commuter line, South West Trains out of London Waterloo, currently has debts of about 343m.

This is far lower than the debt pile of 2.3 billion at ScotRail-owning FirstGroup and 658m at National Express.

One analyst said: "There is latent acquisition potential at Stagecoach, whereas FirstGroup and National Express in particular would look too financially strapped at present."

The City consensus for underlying pre-tax profits at Stagecoach is 153m. That compares with 196.4m in the previous year.

There was better news for Stagecoach last week when it confirmed it had saved a potential 100m dent in its revenues after a contractual dispute with Britain's Department for Transport was settled by an independent arbitrator in the group's favour.

An arbitrator ruled that the DfT should pay revenue shortfall support to the SWT franchise from April 2010, and not February 2011 as the department claimed.

But 8m will be knocked off Stagecoach's profits this year after the arbitrator ruled in the DfT's favour on a second issue, deciding that revenue from station car parks should be included when calculating franchise agreements.