Stagecoach tipped to benefit even if it loses West Coast franchise

By PETER RANSCOMBE
Published on 12/08/2012 03:41

STAGECOACH could emerge from the current rail franchise bidding wars with higher profits from its train division, according to analysts, even if Sir Brian Souter’s firm loses its West Coast route to arch rival FirstGroup tomorrow.

UK Transport Secretary Justine Greening is due to reveal whether Aberdeen-based FirstGroup has snatched the route away from the Perth-based firm and its partner, Sir Richard Branson’s Virgin group.

Speculation in the City has continued to mount that Virgin Trains will lose the right to run services between Glasgow and London, with FirstGroup predicted to trump its £6 billion bid with a £7bn offer that will net the Treasury £500 million a year in royalty payments.

The size of the expected bids has sparked fears that companies could over-pay for the franchise, reviving memories of the re-nationalisation of the East Coast line after National Express was unable to turn a high enough profit.

But Douglas McNeill, an analyst at Charles Stanley, said Stagecoach could be left in a better position overall financially if it loses the West Coast franchise but picks up one of the other two for which it is currently bidding.

“If Stagecoach wins either the Great Western or Thameslink on its own then it would reap all the profits from those routes, as opposed to sharing them with Virgin in the West Coast franchise,” McNeill said.

The winner of the Great Western franchise will be selected in December, while the successful bidder for the Thameslink route will be announced in May.

Stagecoach already operates the East Midlands and South Western lines alone. Souter will face shareholders at the transport group’s annual general meeting on 24 August to defend the firm’s record if it loses the West Coast franchise.

Paul Hickman, an analyst at Peel Hunt, said retaining the West Coast line would be worth 30p on top of Stagecoach’s share price, which closed at 284.3p on Friday.

Hickman added: “Stagecoach’s Virgin joint venture and FirstGroup are rumoured to be front-runners. Our gut feeling is that FirstGroup, with more need to bid up, will win on price.”

The analyst said the group’s financial performance remains “on course”, with like-for-like sales at its regional bus unit expected to be up 4 per cent when it posts its first-quarter trading update next week.