One to Watch: First Group

FIRST Group has four divisions: UK bus, UK rail, North America and Greyhound. In the UK, its passenger rail franchises include First Capital Connect, First Great Western and First ScotRail. First Group is the UK's largest bus operator, with 21 per cent of the market, whilst its North American student bus arm has about 10 per cent market share.

First Group

395.9p +9.7p

Scotsman says BUY

The group has had problems in the US. There are concerned that the yellow bus business will suffer as a result of state spending cuts. Rising oil prices have also taken their toll. However, overall, yellow bus's business model seems to be performing satisfactorily. There are challenges in the US bus market, and the group's balance sheet, as a result of the acquisition of the Laidlaw operation in the US in 2007, is highly geared.

Yet First Group appears a welcome exception to one or two rather dismal examples within the UK transportation system. The company has strong cash-generative operations, which offer comfort to the geared balance sheet and the dividend. The shares could be one for a portfolio's guards' van.

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• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.