SHARES in transport company FirstGroup soared today after revealing that its UK bus business is on the road to recovery despite a fall in sales.
The company took a $15 million (£9.5m) hit to profits because of “superstorm” Sandy in the US, but overall the Aberdeen-based firm said its third-quarter trading was in line with expectations.
Shares rose more than 6.1 per cent, or 11.8p, to close at 203.8p as analysts warmed to the improving position.
Like-for-like UK bus revenues rose 2.1 per cent during the three months to the end of December, although that marked a slowdown from the 2.6 per cent growth seen during the first half of the year.
Chief executive Tim O’Toole said full-year operating margins are set to come in at about 8 per cent, and the group is “encouraged by early positive signs in some of our markets”.
FirstGroup is targeting £100m of disposals at its UK bus arm to focus on high-growth areas, and yesterday sold its businesses in Kidderminster and Redditch for £1.5m. O’Toole admitted that “considerable work” remains to be done at the division, which has a fleet of 8,000 vehicles carrying some 2.6 million passengers a day.
Jonathan Jackson, head of equities at Killik & Co, said yesterday’s update was “fairly reassuring”, and the actions being taken to improve trading were yielding “encouraging” results.
However, he added: “A lot of uncertainty still exists – the economic background remains tough, there is little clarity on the timing of rail franchise and the level of debt remains uncomfortably high.”
FirstGroup ended the first half of the year with net debt of just over £2 billion, but O’Toole said yesterday that the proceeds of a £325m bond issue in November had been used to cut borrowings.
In the US, where FirstGroup carries six million students a day on its fleet of about 54,000 yellow school buses, profits for the year are likely to be hit to the tune of $15m as a result of disruption caused by Sandy, which wreaked havoc across the eastern US and Canada in late October.
O’Toole said the storm affected 130 of the group’s locations and led to the closure of schools for up to nine days, but underlying full-year margins are expected to remain “broadly unchanged” compared with last year.
The group’s rail division, which was rocked by last year’s debacle over the bidding process for the West Coast mainline franchise, saw revenues rise 8.1 per cent during the third quarter.
FirstGroup was initially awarded the 13-year deal in August, snatching it away from incumbent Virgin Trains, but the contract was torn up after “significant technical flaws” were found in the bidding process. Virgin will continue to operate the franchise until November 2014 while the competition is re-run.
O’Toole said he hoped the outlook for the rail business should become clearer in May, when the board will consider the firm’s full-year dividend – the interim pay-out was frozen in November following the franchising fiasco. FirstGroup currently holds the ScotRail franchise, and last month it was handed a five-month extension to the contract, which had been due to expire in November 2014.
Analysts at Shore Capital trimmed their full-year profit forecast by £9m to £173m following yesterday’s trading update.