It was a horrid year for travel companies, which were beset by falling passenger numbers and higher fuel costs. But Stagecoach, fortunately, sits at the more defensive end of the sector, generating over 70 per cent of its profits from regional UK bus operations. This division even managed to grow revenues, thanks to canny pricing - although a £21.7m increase in fuel costs kept profits flat.
The fuel price has since reversed, which bodes well for profit growth in the current year. But worrying unknowns have also emerged. The Competition Commission is currently running an investigation into the regional bus market, although this isn't thought likely to present any real dangers. Much more threatening is the budgetary axe, which could well fall on the universal bus pass for over 60s - a Labour policy - and the fuel duty rebate. Neither was mentioned in the Budget so all eyes will be on October's spending review.
The company's other divisions proved less recession-proof. Revenues at its two UK rail operations, South Western and East Midlands, failed to keep pace with the bullish forecasts agreed with the Department for Transport (DfT) during the good years, hitting margins under the embattled – and soon to be reformed – franchise system. The pill was sweetened, however, by Stagecoach's victory in its arbitration case against the DfT to receive revenue support for South Western from April 2010, rather than 2011, as the ministry argued. This eliminates a crucial uncertainty in the outlook for UK rail which, alongside improving revenues, now looks much brighter.
Stagecoach's least resilient business was its north American cluster of intercity coach services. Largely subject to discretionary spending, profits plummeted 36 per cent there. Management expects little improvement this year although, in the longer-term, it's counting on its no-frills Megabus service to boost growth.
Nomura expects underlying pre-tax profit of £195m for 2011, giving EPS of 21.5p (2010: £170m/18.9p).
STAGECOACH (SGC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 194p | MARKET VALUE: | £ 1,397m | |
| TOUCH: | 193-194p | 12-MONTH HIGH: | 205p | LOW:115p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 2p* | NET DEBT: | £297m | |
| Year to 30 Apr | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 1.34 | 92 | 10.3 | 3.70 |
| 2007 | 1.50 | 184 | 20.0 | 4.10 |
| 2008 | 1.76 | 167 | 31.8 | 5.40 |
| 2009 | 2.10 | 171 | 18.7 | 6.00 |
| 2010 | 2.16 | 126 | 15.1 | 6.50** |
| % change | +3 | -26 | -19 | +8 |
Ex-div: - Payment: - *Includes intangible assets of £116m or 16p per share **Second interim dividend paid on 3 March | ||||
