Stagecoach eyes west coast line deal

By PETER RANSCOMBE
Published on 05/12/2012 22:03

INCOMING Stagecoach chief executive Martin Griffiths expects to unveil a deal on Thursday with the UK government to temporarily extend its west coast rail franchise with joint venture partner Virgin.

The Perth-based transport group’s contract to run the route with Virgin Trains comes to an end on Saturday.

Griffiths – who will succeed Sir Brian Souter as chief executive in May – told The Scotsman that he had been involved in productive talks with the

Department for Transport.

“I can assure passengers that the trains will still be running next week – and I’m confident Virgin Trains will be running them,” Griffiths said.

In August, the coalition government awarded the contract to run the route to Aberdeen-based FirstGroup instead of

Virgin Trains.

But the ensuing row over how the franchise was awarded led to ministers launching a review, with Virgin Trains this week

expected to be given a short-term extension to run the route. Analysts think a nine-to-13-month extension is likely.

Souter said: “The private sector has been central to the huge growth of UK rail travel over the past 15 years and it is important that a sustainable rail franchising programme is restarted as quickly as possible.”

Liberium Capital analyst Alexia Dogani said: “The recent rail re-franchising fiasco, has highlighted the importance that quality underlying operations make in the sector. We see Stagecoach as the less-risky way to play the delayed rail refranchising round.”

Souter’s comments came as he unveiled his final set of results before stepping down to become chairman.

The group posted an underlying profit of £123.7 million in the six months to 31 October, up 39 per cent, with sales rising by 5.9 per cent to £1.4 billion.

Analysts said the “sharp” rise in profits came from revenue support payments by the UK government for the East Midlands Trains franchise, a one-off £4m boost for the UK bus business from the Olympic Games and growth in passenger numbers on both UK bus and rail.

The City praised the group’s management team, especially at its UK bus division, with Deutsche Bank highlighting that Stagecoach doesn’t face the funding woes being experienced by FirstGroup or the slowdown in the Spanish market effecting rival National Express.

Griffiths said: “There’s no one factor that makes our bus business different, but we don’t try and micro-manage services in Inverness or Exeter or Oxford from Perth. We let managers take sensible risks and don’t take them out and shoot them if they get things wrong.”

The group hiked its interim payout to 2.6p from 2.4p but the City believes a further windfall could be on its way.

Karl Burns, an analyst at Shore Capital, said: “Stagecoach continues to report robust cash generation of circa £80-90m per annum, offering potential upside from a capital event – likely via a future increase in dividend payments, in our view.”