Stagecoach starts year in low gear, but in line
Train and bus services operator Stagecoach Group had a mixed start to its trading year, with London buses and North American revenues both in reverse.
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The FTSE 250-listed group, which has lost the South West and East Coast rail franchises in the past two years and has missed out on some recent London bus tenders, said its forecast for adjusted earnings per share for the year to next April was "broadly unchanged" since announcing results in June.
Excluding the lost East Coast contract, the UK rail business grew like-for-like revenues 2.1% in the first 16 weeks of the new financial year, with growth at the East Midlands franchise hit by a reduction in services to accommodate changes to the Thameslink network since and signalling changes at Derby railway station.
However, Virgin revenues were up 5.3% and both Virgin West Coast and East Midlands trains saw "continued good profitability".
UK regional buses grew LFL sales 3.2%, which benefited from good summer weather and rail replacement services from the Derby station issues.
London bus revenues fell 2.2% and will fall more sharply as the year progresses after disappointing bidding round on current year tenders with Transport for London. Initial slowness reflected contracts lost in the prior year, with profitability squeezed by higher operating costs from fuel price rises, hot weather and the start-up costs of a new sightseeing service.
Expressing disappointment in recent tendering, Stagecoach said it continued to "see positive opportunities to improve the revenue and profitability of the division over the longer term and we will maintain our discipline in bidding for new contracts".
LFL revenue from North America was down 3.8% for the four months to 31 August, including a 1.8% decline for Megabus in the region, though revenue per mile was up 3.8%. Revenue at other businesses decreased by 4.7%, reflecting the boost last year from rail replacement contracts.
Stagecoach shares rose almost 2% to 161.5p in early trading on Wednesday.
RBC Capital Markets said trading was on track and consensus earnings per share was likely to tighten up towards 18.2-18.3p.
"We find investor bearishness on bus due to UK high street retail failures. But, we find this source of ~25% bus demand sees >40% of Stagecoach’s bus operations in centre of regions with ‘hot high streets’. We think this supports long-term prospects when twinned with exposure to towns with overall population growth, strong university populations and mostly constructive local authorities," analysts wrote.
With existing UK rail contracts likely to be exhausted in 2021, RBC suggested a potential government rail review "could see further extensions added", but even as 'pure bus' company Stagecoach "could deliver a bus only 15p EPS in FY21E".