FirstGroup boosted by rail franchise extensions

INVESTORS have cautiously welcomed news that FirstGroup will receive extensions on two of its busiest passenger rail franchises, nudging the group’s shares slightly higher in an otherwise weak market.

The Great Western franchise from London to Bristol and Cardiff will remain with FirstGroup for an initial 28 weeks beyond its original termination date at the end of March, with discussions under way to continue its operation for a further two years thereafter.

In addition, the First Capital Connect franchise covering the south-east of England is due to continue beyond its current end date of 14 September.

News of the extensions comes just four months after the government pulled the contract for the West Coast Main Line from Aberdeen-based FirstGroup following a bungled tendering competition that is estimated to have cost taxpayers some £50 million. Ministers and civil servants at the heart of the fiasco came in for renewed criticism yesterday when an MPs’ committee declared the collapsed deal was the result of “irresponsible decisions”.

Great Western was one of three franchise competitions put on hold in the wake of the West Coast Main Line debacle.

Yesterday’s announcement by the Department for Transport was billed as an “important step” on the way to restarting the franchising programme. Meanwhile, analysts at Killik & Co said the latest developments would give FirstGroup a boost. “This is positive news in light of the market’s concerns over the group’s cash flow and dividend generating capacity,” Killik said.