Join our community of smart investors

FirstGroup off the rails

RESULT: FirstGroup's struggling bus business and a lack of clarity over rail refranchising are already having an impact on the dividend
November 7, 2012

A weak UK bus business and a switch to a less lucrative extension on its TransPennine rail franchise hammered half-year profits at FirstGroup (FGP). But it's the uncertainty surrounding the West Coast franchise and future rail tendering that has really put a spanner in the works and meant no increase in the half-year dividend. That puts management's promise to grow the payout by 7 per a year at risk and increases the chance of a big cut next year. We'll have to wait until May to find out.

IC TIP: Sell at 196p

Many of First's divisional numbers were flagged last month. However, even in the absence of last year's £73m pension benefit, the bottom line looked ugly - made worse by this year's £12.3m of rail bid costs and further £9.2m spent settling a contract dispute at Transit and shutting bus depots. Even after stripping out one-off items, pre-tax profit still tumbled 42 per cent to £48.7m. True, First will get back the money spent on its West Coast bid, but it still has no idea how much. Operating profit fell by a third at UK bus to £39.6m as First pulled in less concessionary revenue in the south, while selling £100m of unwanted bus depots is proving slow going. In North America, improvements at Greyhound and the Transit business lifted dollar profits by 6 per cent.

Investec Securities expects adjusted pre-tax profit of £185.5m in 2013, giving adjusted EPS of 29.3p (from £271.4m and 39.8p in 2012).

FIRSTGROUP (FGP)

ORD PRICE:196pMARKET VALUE:£944.5m
TOUCH:196-197p12-MONTH HIGH:350pLow: 184p 
DIVIDEND YIELD:12.1%PE RATIO:8
NET ASSET VALUE:148p*NET DEBT:284%

Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20113.1712818.37.62
20123.258.401.707.62
% change+3-93-91-

Ex-div: 9 Jan

Payment: 7 Feb

*Includes intangible assets of £1.89bn, or 392p a share