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A continental shift for Stagecoach after Megabus Europe sale

The transport group has sold the retail part of its Megabus Europe business to FlixMobility
June 29, 2016

Relinquishing control of its investment-heavy, lossmaking Megabus Europe business should help bus and rail company Stagecoach (SGC). The retail part of this division, which oversees functions such as timetabling and marketing, has been sold to FlixMobility and contracting out the coach operation will fall to the purchaser. Finance director Ross Paterson says that, while it "remains to be seen" how many services Stagecoach will be contracted to run, the deal will be positive for underlying profits.

IC TIP: Sell at 222p

Megabus Europe is a minnow compared with other divisions within the group. Operating profits fell at each of its UK regional, London and North American bus divisions and Mr Paterson expects margins* to be flat this financial year, as lower oil prices reduce fuel costs, but make car travel - particularly in the US - more attractive.

Rail benefited from the commencement in March last year of the East Coast rail franchise, but Mr Paterson says "profitability has been below what we assumed in the bid".

Analysts at Liberum expect adjusted pre-tax profits of £180m in the year to April 2017, leading to EPS of 25.5p, compared with £187m and 27.7p in FY2016.

*29 June 2016: This article was immediately updated after publication to make clear that Mr Paterson was referring to margins, rather than profit growth.

STAGECOACH (SGC)
ORD PRICE:222pMARKET VALUE:£1.27bn
TOUCH:222-225p12-MONTH HIGH:412pLOW: 195p
DIVIDEND YIELD:5.1%PE RATIO:13
NET ASSET VALUE:31p*NET DEBT:£399m

Year to 30 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20122.5924029.57.80
20132.8015422.08.60
20142.9315823.19.50
20153.2016524.310.50
20163.8710417.111.40
% change+21-37-30+9

Ex-div: 1 Sep

Payment: 5 Oct

*Includes intangible assets of £226m, or 39p a share