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News of a placing of up to 10 per cent of the group's share capital sent FirstGroup's shares sharply south, despite record results from the bus and rail operator. The funds will help repay the steep debt incurred with last year's $3.5bn (£1.79bn) acquisition of Laidlaw in the US and strengthen the group's capital structure, says chief executive Moir Lockhead.
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Laidlaw had made a "significant" contribution to the 2007-08 results since October's acquisition, Mr Lockhead said. At constant exchange rates, operating profit from the North American operations rose 115 per cent year-on-year. The deal also catapulted FirstGroup into the FTSE 100 index. Synergies from the integrating Laidlaw are now expected to be better than expected, with $150m a year of savings forecast from April 2009, up from previous targets of $100m a year. In the UK, operating profit at the bus division rose 18.4 per cent as management focused on controllable costs in the face of rising fuel prices. Operating profit at UK rail rose 10.3 per cent on the back of strong volume growth and new services.
Dresdner Kleinwort expects pre-tax profit excluding exceptional items to rise to £330m in 2009 (£249m in 2008), with EPS of 49.97p (40.87p).
FIRSTGROUP (FGP) |
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|---|---|---|---|---|
| ORD PRICE: | 555p | MARKET VALUE: | £2.43bn | |
| TOUCH: | 554-555p | 12-MONTH HIGH: | 815p | LOW: 497p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 158p* | NET DEBT: | 307% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 2.48 | 123.0 | 22.3 | 11.70 |
| 2005 | 2.69 | 156.0 | 27.1 | 12.80 |
| 2006 | 3.03 | 157.0 | 27.4 | 14.10 |
| 2007 | 3.71 | 140.2 | 23.1 | 15.50 |
| 2008 | 4.71 | 151.9 | 27.7 | 17.05 |
| % change | +27 | +8 | +20 | +10 |
Ex-div:16 Jul Payment:22 Aug *Includes intangible assets of £1.65bn, or 377p a share |
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While the share placing will dilute future EPS, the better-than-expected synergy targets will soften the blow. The shares are below where we suggested buying them (610p, 9 March 2007) but, trading on 11 times expected earnings for 2009, they remain a buy.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
