City sticks by rail company despite industrial unrest

Published on Saturday 20 February 2010 14:04

THE strike hitting ScotRail this weekend amid a barrage of other negative consumer publicity for owner FirstGroup's UK rail arm has been brushed off by the City.

Analysts say problems in the company's rail business are "virtually meaningless" for the share price, as a flurry of recent "buy" notices for shares in the parent company has starkly highlighted FirstGroup's continuing popularity with investors.

The industrial action in Scotland threatened by the RMT union over the defence of the role of guards follows a recent bitter dispute with drivers about overtime arrangements on First Capital Connect.

The latter dispute on the cross-London line from Bedford to Brighton – Britain's busiest with 200,000 customers a day – even led transport secretary Lord Adonis to label First Capital's service "substandard" and to say he was monitoring it.

But among a recent wave of positive broker circulars on First Group have been buy notices from brokers Cazenove, UBS, Deutsche Bank and Arbuthnot.

Douglas McNeill, a transport analyst with broker Astaire Securities, said: "Capital Connect attracts headlines out of all proportion to its financial importance to FirstGroup.

"The franchise accounts for only a few percentage points of overall operating profit. Over 80 per cent of FirstGroup's profit comes from its bus operations, both here and in America."

Another analyst said: "It will be the same with the ScotRail action. Fund managers might moan if they have to use FirstGroup's rail operations themselves. There has been loads of bad publicity on punctuality and reliability.

"But, being blunt, the City will always ignore such contentious consumer issues unless there is going to be a big financial impact. And that is very unlikely.

"FirstGroup's entire UK network only accounts for 20 per cent of profits. The industrial issues are virtually meaningless in the stock market sense." One City FirstGroup-follower put the impact of the consumer gripes, which have also extended to First Great Western out of London Paddington, "as no more than four or five pence off the share price, tops".

Misery for commuters in Scotland this weekend kicks off three weeks of strikes by the RMT as drivers, conductors and sleeper train managers defend the role of the guards on the new Airdrie-Bathgate line.

At First Capital Connect, MPs and consumers cited constantly changing timetables, poor reliability and poor communications at the FirstGroup franchise.

Some critics have blamed FirstGroup's poor rail performance on more than 600 job losses at the company's rail business announced in early 2009 as part of a wider 200m cost-cutting programme.

That, in turn, was meant to address falling customer numbers due to the recession.

FirstGroup, which took a 140m taxpayer subsidy for its rail business in 2009, said last month that there had been a 1.7 per cent rise in like-for-like passenger revenue growth on its rail franchises.

But commuter dissatisfaction is undiminished. In a survey by independent rail watchdog Passenger Focus earlier this month, First Capital had the lowest British customer satisfaction rating – just 75 per cent.

First Great Western was also low in the list at 82 per cent satisfaction, while ScotRail had a 90 per cent rating. A cult website, FirstCrapitalConnect, has also been launched, and one national newspaper labelled FirstGroup "Scrooge of the Year".