Stagecoach rail business remains on track

TRANSPORT group Stagecoach yesterday assured investors that all of its wholly owned units would at least maintain their level of profitability for the current financial year, despite a slowdown in UK sales growth.

For the 48 weeks ended 1 April, the Perth-based company reported an 8.8 per cent increase in like-for-like sales at its UK rail division – its largest business – which includes London commuter franchise South West Trains. That was down from the 9.5 per cent growth reported for the 40 weeks to 5 February.

Shore Capital analyst Greg Johnson described the trading update from the group, headed by chief executive Sir Brian Souter, as “reassuring”.

Johnson said the update marked some slowdown over the last two months, especially at Stagecoach’s UK bus business, “but we note the volatility over a short trading period”.

Regional operations for its UK bus segment posted a 2.7 per cent increase in like-for-like sales for the 48 weeks, down slightly from the 3 per cent growth seen during the 40 weeks to 5 February.

“Overall current trading remains good,” Stagecoach said in the update ahead of its full-year results, due to be announced in June.

“We believe the prospects for the group remain positive and that each of the group’s wholly owned divisions remain well placed to at least maintain their level of operating profit in the year to 30 April 2013.”

Investec analyst John Lawson said he currently expects the group to make pre-tax profits of £193.2m in the year to the end of April 2012, down from £205.7m a year ago, but is considering raising his forecast closer to £200m.

Stagecoach’s North America division, which includes its megabus.com budget coach operations, posted a 14 per cent jump in like-for-like sales in the 11 months to the end of March. That compared with a 13.3 per cent increase for the nine months to the end of January.

The US market has been a bright spot for UK transport operators. National Express Group also reported a 5 per cent increase in North America revenues last month while FirstGroup said its US school bus and Greyhound operations continued to perform well.

Last week Stagecoach expanded its megabus network into mainland Europe, with the launch of routes to Paris, Brussels, Amsterdam and Boulogne on a new £2.5 million fleet of coaches. There is also a dedicated Paris-Brussels-Amsterdam service.

Investec analyst John Lawson said most divisions across the group appeared to be trading relatively well and the update “further confirms that management is on top of its game”.

“The only slightly disappointing theme, in our view, is in the Virgin Rail Group figures,” he said. Stagecoach has a 49 per cent shareholding in Virgin Rail Group, operator of the Glasgow-to-London west coast mainline franchise, which is up for renewal in the summer. Sales rose 7.9 per cent in the 48-week period to 1 April, compared with 8.9 per cent growth for the 40 weeks to 5 February.