FirstGroup’s £100m asset disposal plan ‘in danger’ warn analysts
PRESSURE mounted on Aberdeen-based transport operator FirstGroup yesterday after analysts detected a “negative signal” over its attempts to sell £100 million-worth of assets.
On Tuesday, Perth-based rival Stagecoach pulled out of a £2.8m deal to buy a bus business in north Devon, less than two hours after the Office of Fair Trading (OFT) had referred the proposed sale to the Competition Commission.
FirstGroup denied that the move by Sir Brian Souter’s firm would affect the planned disposal of £100m of assets in its UK bus division, which the firm is selling in order to focus on “high-growth” areas.
But Karl Burns and Greg Johnson, analysts at Shore Capital, yesterday warned that the decision by the OFT could have further implications.
“Whilst this isn’t significant in terms of proceeds for FirstGroup – with the company missing out on gross consideration totalling £2.8m – we believe this is a negative signal for the group’s sale of about £100m of UK bus assets,” the pair said.
“Currently, the five largest UK bus operators hold about 70 per cent of the total market and, therefore, we believe operators may be highly restricted in bidding for some of the assets that FirstGroup plans on disposing. We believe this could put the £100m target under pressure.”
The analysts also noted recent press speculation, which “suggested the company may be struggling to achieve its planned disposals proceed target and larger, potentially more-dilutive, disposals could be required in order to achieve the £100m”.
FirstGroup had argued that the collapse of the west country sale would not affect other planned disposals because circumstances in the north Devon business were unusual as Stagecoach was the only bidder and there is significant overlap between operations of the two companies in the area.
The company said it remained “confident” of finding buyers for the other assets.
Stagecoach was “extremely disappointed” at the OFT’s referral to the Competition Commission given the relatively small scale of the deal, which involved 30 vehicles operating on ten routes in north Devon and a depot in Barnstaple.
Shares in FirstGroup dropped 7 per cent, or 14.4p, to close at 190p last night, having fallen as low as 186.1p earlier in the day.
Jonathan Jackson, head of equities at Killik & Co, pointed out that the stock had also turned ex-dividend, meaning investors buying shares now would not be entitled to the forthcoming payout.
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