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Stagecoach veers off course

The transport group cut its guidance for full-year profits following weak trading in the bus network.
December 9, 2015

A "modest revision" to its full-year expectations was enough to send shares in bus and rail operator Stagecoach (SGC) down 14 per cent on the morning of its half-year results. Chief executive Martin Griffiths said he was "surprised" the shares had moved so aggressively.

IC TIP: Sell at 307p

Margins fell in all three of the group's bus divisions, which cover North America, London and the UK regions. But management said the UK regional bus unit would record similar full-year margins to last year if rising start-up costs - now £20m - for its European adventure are excluded. Rail was the bright spot, with margins almost doubling to 4 per cent and operating profits tripling. Overall, the business posted a near 12 per cent increase in adjusted pre-tax profits. The reported numbers were hit by a £23m charge related to the refinancing of its £400m of debt, which now carries a 4 per cent coupon as opposed to 5.75 per cent.

But short and medium-term pressures are evident. Management acknowledged a "reduction in the rate of revenue growth" in some of its rail and inter-city coach services since November's attacks in Paris. While Mr Griffiths expects this to reverse, management also noted "softer than expected" revenue in its regional UK bus business. This was a major driver of the guidance downgrade.

Analysts at Liberum expect full-year pre-tax profit of £207m, leading to EPS of 29p, compared to £185m and 26.7p in FY2015.

STAGECOACH (SGC)
ORD PRICE:307pMARKET VALUE:£1.8bn
TOUCH:306p-307p12-MONTH HIGH:438pLOW: 295p
DIVIDEND YIELD:3.5%PE RATIO:13
NET ASSET VALUE:28p*NET DEBT:£460m

Half-year to 31 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.5598.313.93.2
20151.9790.812.83.5
% change+28-8-8+9

Ex-div: 4 Feb

Payment: 2 Mar

*Includes intangible assets of £216m, or 38p a share