Shares in Stagecoach (SCG) fell as much as a tenth on the day the transport group revealed most of its pre-tax profits had been wiped out by an impairment and onerous contract provision against the Virgin Trains East Coast Franchise (it has a 90 per cent stake in the operator). Taken together, they delivered a £129m hit to the income statement. Stagecoach said the "scope and timing" of improvements to rolling stock and infrastructure had changed from its original bid as Network Rail had changed its priorities. Chief executive Martin Griffiths said the company was in discussions with the Department for Transport about the obligations under the contract and expects new commercial terms to be finalised in the next year; the East Coast business should now become profitable in 2019.
The UK rail division as a whole fared better with like-for-like revenue up 2 per cent to £2.16bn, but the impact of the East Coast franchise helped more than halve operating profit to £31m. The group pointed to poor operating performance at Network Rail and increased competition from cars among reasons behind the slower growth here. As a result, passenger revenue growth at South West Trains (a franchise ending in August 2017) and Virgin Trains East Coast were not enough to cover higher costs and premia payments to the UK government.
Road congestion affecting bus services and ongoing low fuel prices appear to have encouraged more UK travellers to drive rather than catch the bus. Like-for-like revenue at the domestic bus division fell 1.5 per cent. Rising staff costs reduced the operating margin by 140 basis points. Still, research by transport specialist TAS found weekly bus travel with Stagecoach tends to be 10 per cent cheaper than the UK average, giving the bus operator the impetus to put through some price increases. Across the pond, similar pressures at its megabus.com division saw revenue fall 4.9 per cent over the year compared with a 2.1 per cent revenue dip in the overall North American division.
Analysts at Canaccord Genuity expect pre-tax profits of £151m in the year to April 2018 giving EPS of 21.7p, down from £159m and 24.4p in FY2017.
| STAGECOACH (SGC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 184p | MARKET VALUE: | £1.06bn | |
| TOUCH: | 183.8-184.1p | 12-MONTH HIGH: | 234p | LOW: 183p |
| DIVIDEND YIELD: | 6.5% | PE RATIO: | 33 | |
| NET ASSET VALUE: | 13.6p* | NET DEBT: | £409m | |
| Year to 29 April | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 2.80 | 154 | 22.0 | 8.6 |
| 2014 | 2.93 | 158 | 23.1 | 9.5 |
| 2015 | 3.20 | 165 | 24.3 | 10.5 |
| 2016 | 3.87 | 104 | 17.1 | 11.4 |
| 2017 | 3.94 | 18 | 5.5 | 11.9 |
| % change | +2 | -83 | -68 | +4 |
Ex-div: 31 Aug Payment: 4 Oct *Includes intangible assets of £193.2m, or 34p a share | ||||
