Stagecoach expects to reach profit forecasts

TRANSPORT group Stagecoach is on track to deliver full-year profits of £182 million this year despite highlighting a number of challenges in a trading update yesterday.
Stagecoach chairman Sir Brian SouterStagecoach chairman Sir Brian Souter
Stagecoach chairman Sir Brian Souter

The Perth-based company, which this week took over the running of the East Coast main line in a joint venture with Virgin, saw like-for-like revenue growth across its operations in the nine months to 1 February.

But it did flag an issue in its US business, with lower oil prices seeing passengers switch away from public transport to using their own cars. That trend had previously been highlighted by Aberdeen-based rival FirstGroup, which also has significant US operations, and is impacting Stagecoach’s inter-city coach services in particular, although overall US like-for-like revenue growth was 1.9 per cent higher during the period.

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“The operating environment in North America remains competitive, but we continue to see market opportunities within the division,” said Stagecoach, which was co-founded by chairman Sir Brian Souter.

In its UK bus regional operations, like-for-like passenger volumes grew by 0.4 per cent and revenues by 2.7 per cent. Although growth in January was lower than in the previous months of the financial year, the firm said this was largely due to variations in weather and it did not believe it was indicative of any underlying weakening in growth.

The company plans further expansion of its Megabus coach services in continental Europe, building on its success in the UK and North America. It expects slightly higher start-up losses for these services of around £5m for the year ending 30 April as it develops what it described as a “significant opportunity”.

Stagecoach’s bus operations in London suffered some loss of revenue as a result of a 24-hour strike by drivers affecting all major operators of Transport for London contracts.

The UK rail operations saw financial performance in line with expectations. The new East Coast rail franchise began on Sunday and Stagecoach said it expected to significantly enhance the profitability of the UK rail division in the next financial year and beyond. Trading to date under the West Coast Trains franchise that it also operates with Virgin remains strong and Stagecoach said that, under the terms of the franchise contract, UK taxpayers were benefitting from this performance as part of a profit-sharing agreement with the UK Department for Transport.

Overall, Stagecoach said that, despite a number of challenges to growing profit in the current year, current trading was satisfactory and the business is on course to meet expectations for the year.

Martin Brown, analyst at Shore Capital, said trading was in line with expectations but there was scope for “very small downgrades”.

He said the wording of the company’s comments about satisfactory trading “could be interpreted as trading is weaker than management were originally expecting” but he added that the broker would be cautious about reading too much into this.

Shares in the group closed up 3.2p at 340.8p.

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Mr Brown, who has a “buy” rating on the shares, added that he saw “little to get investors excited ahead of the [general] election” but there was scope for a return of cash in the 2016-17 financial year, “which should reinvigorate investors’ enthusiasm”.

John Lawson at Investec also said Stagecoach’s share price was “likely to remain relatively becalmed” until after the election.