Promisingly, transport and infrastructure was in the part of the Chancellor’s speech dedicated to "building the future" of the British economy. He laid down some big numbers and said transport was getting the biggest capital settlement after defence.
But infrastructure spending will primarily benefit Network Rail and the construction industry, rather than the 'Big Four' quoted bus and rail operators. The same goes for Mr Osborne's decision to lift the cap on rail fare increases, from RPI plus 1 per cent to a hefty RPI plus 3 per cent from 2012. In fact, that will probably depress demand for train travel beyond the commuter belt, though it's hard to be sure before the government publishes its reform of the franchise system, which so far looks positive.
Instead, Mr Osborne's key announcement for investors was that "direct bus subsidies" will be cut - though we don't yet know by how much. For the uninitiated, this means the fuel duty rebate or "bus service operators' grant" (Bsog), worth £436m in the Department for Transport's last annual report. , it's an obscure hand-out that always looked a likely victim. Bus companies will probably raise fares in reaction. Also as we anticipated, Mr Osborne didn't dare touch free bus passes for the elderly – a more politically sensitive subsidy.
The transport sector has tracked broadly sideways since the spring, on low ratings in fearful anticipation of the spending review. We suggested buying FirstGroup in April for the valuation anomaly and chunky yield, and the same logic informed our tip on Go-Ahead in July. Both are modestly up on our recommendations and the spending review should put a floor under those discount prices. Stagecoach is the company most exposed to cuts in the bus subsidy, but the bad news was already priced in and investors are still celebrating the group's bargain re-acquisition of the bankrupt East London Bus Group this month.
