Martin Flanagan: Stagecoach resilient despite headwinds
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A left-field Brexit vote that has sapped business and consumer confidence, an economic slowdown, car-friendly lower oil prices, terrorism and poor weather have all rained down from the ridge. But that is to underestimate the resilience of the better-run parts of the transport sector. Perhaps second only to food, transport has significant defensive characteristics in downturns, even one with the multiple negative facets outlined earlier.
People have to get around, both for work and leisure. As such, as at Stagecoach, revenue growth may slow and profits and profit margins may take a hit, but the underlying businesses remain sound, with the longer-term dynamics at its back.
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Hide AdThese include population growth, the pressure to tackle road congestion and air quality, the general move to cities from the country as economic migrants, and increasing use of the internet to make public transport easier to access and to pay for.
Despite taking a 20 per cent hit to its operating profit line, Stagecoach’s overall revenues lifted above £2 billion in its latest six trading months, and the dividend is raised 8 per cent partly because of the group’s strong cash flows and partly because of what it views as its positive medium-term prospects beyond the current flurry of headwinds.
The group is also the latest to seize on a silver lining in the bouffant political and economic cloud that is Donald Trump, the US president-elect. To wit: the incoming president’s voluble commitment to US infrastructure improvement.
Britain’s engineering and construction companies want some of this action, our component makers believe they can get in there, too, and transport companies with sizeable North American operations like Stagecoach see the revenue potential in transporting workers to overhaul the infrastructure and then moving around people more inclined to use public transit because the better roads, highways and bridges make it a smoother experience.
No industry is immune from macro-economic and political factors. But Stagecoach’s latest decent figures amid the storm show it to be pretty well-upholstered to ride out the short-term disruption.