One to Watch

FIRSTGROUP is the largest UK bus operator and also has various rail franchises including ScotRail. In the US, the bus interests include Greyhound and the "yellow buses" used for school runs.

The latest trading update from FirstGroup, ahead of the preliminary results on 12 May, has prompted analysts to downgrade their forecasts and further undermined sentiment. So with moderate earnings growth forecast for this year, as opposed to growth of about 15 per cent estimated prior to the announcement, should existing shareholders sit tight, sell or "top up" their shareholdings on weakness?

The shares are unlikely to rally until evidence of an improving trading outlook appears. Yet FirstGroup is operating in markets that have growth potential and it is well positioned to expand its presence in the highly fragmented US school bus market. As a result, I consider that existing shareholders should sit tight for the time being. There are just too many uncertainties involved to merit increasing holdings.

The value of your investments may fall and you may get back less than you invested. This does not constitute investment advice and you should take professional advice regarding the suitability of this company for your portfolio.

Marks & Spencer

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