Stagecoach picks up speed

The UK bus operation - which accounts for 56 per cent of group operating profit - reported a 24 per cent jump in earnings to £73.3m on a 2.8 per cent increase in revenue to £445m. A £7m drop in fuel costs and increased passenger numbers helped margins surge from 13.6 per cent to a fat 16.5 per cent. However, there are fears that such large operating margins will attract the attention of politicians looking at ways to cut the deficit (see ). Already, a 20 per cent reduction in grants is planned and the Competition Commission is also investigating the industry. For now though, Stagecoach plans only modest fare rises in 2010-11, which should encourage passenger growth.

The rail business, which accounts for 17 per cent of profit and runs the South Western Trains and East Midlands Trains franchises, also faces regulatory change, and large fare rises from January 2012 threaten to interrupt the recovery in passenger numbers seen during the first half. However, the South Western franchise now gets top-ups from the government for any revenue short fall below forecasts, and loss-making East Midlands qualifies for the same deal from November 2011.

In the US, strong demand for budget travel meant the group's megabus.com service performed well and a 7.2 per cent increase in revenue coupled with a fall in fuel costs meant profits surged 71 per cent to $23.1m (£14.6m). Meanwhile, the group has high hopes for the turnaround of the East London Bus Group, which it acquired for £59.5m from administrators in October, and Stagecoach's strong balance sheet means it is well placed to make further acquisitions.

Despite the recent cold weather costing the group "a few million", broker Peel Hunt expects to modestly upgrade its forecasts for full year pre-tax profit to £195m with EPS of 22.3p (from £161m and 18.5p in 2010).

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