North America was the star performer for transport operator FirstGroup (FGP) last year. School bus brand First Student managed to put through average price increases of 7.3 per cent - even for contracts due to expire - and still clocked a 93 per cent retention rate across the board. Retention rates also held up at 80 per cent for those contracts close to termination. Margins at First Student also beat expectations at 9.6 per cent, up from 7.2 per cent last year, while the Brexit-induced weak sterling created a favourable exchange rate for the translation of North American profits, adding £30.7m to the group's overall operating line. However, this was partially offset by an additional £19.8m-worth of costs from more expensive dollar-denominated fuel prices.
The oil price hurt the Greyhound division in particular, where like-for-like revenue slipped 1.7 per cent as the costs of driving a car or buying a budget airline ticket became more competitive with Greyhound ticket prices. But management is optimistic that new technology solutions like smartphone apps, which offer real-time pricing, will help to make these coaches more profitable over the coming year.
That said, it seems reliance on the North American business is likely to continue this year. Strategy in the division is shifting to focus on a smaller but higher-return portfolio of contracts. Since a number of the contracts nearing expiry have already been extended, management believes it will be able to put through some price increases without risking retention rates. The company also hopes to avoid onerous costs increases this year, as hedging policies are in place against the oil price.
In March, FirstGroup won a joint bid with Hong Kong's MTR for the seven-year Southwest Rail franchise contract, taking over from incumbent operator Stagecoach. Management observed that the government appears to be considering the quality of service offered by the bid as opposed to basing the decision solely on price. This bodes well for FirstGroup's current bid with Italian high-speed train operator Trenitalia for the East Midlands and West Coat Partnership franchise - due to be awarded next year.
Analysts at Liberum expect pre-tax profits of £242m in the year to March 2018 giving an EPS of 14.4p, compared with £189m and 11.7p in FY2017.
| FIRSTGROUP (FGP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 141.2p | MARKET VALUE: | £1.71bn | |
| TOUCH: | 141.1-141.4p | 12-MONTH HIGH: | 155p | LOW: 88p |
| DIVIDEND YIELD: | nil | PE RATIO: | 15 | |
| NET ASSET VALUE: | 170p* | NET DEBT: | 62% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 6.90 | -29.0 | -3.0 | 7.6 |
| 2014 | 6.72 | 58.5 | 5.1 | nil |
| 2015 | 6.05 | 106 | 6.2 | nil |
| 2016 | 5.22 | 114 | 7.5 | nil |
| 2017 | 5.65 | 153 | 9.3 | nil |
| % change | +8 | +34 | +24 | - |
*Includes intangible assets of £2.1bn, or 174p a share | ||||
