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Bus boost for Stagecoach

RESULTS: A decent track record in past recessions explains why Stagecoach shares are in high demand
June 26, 2012

Stagecoach’s regional bus business is still growing and the US budget coach operation is shooting the lights out. Even East Midlands Trains is making money now it’s in government revenue support. There’s uncertainty over rail franchises, yes, but a small slip in underlying pre-tax profit was still better than expected, justifying a premium rating.

IC TIP: Buy at 264p

Operating profit from regional bus routes grew operating profit by almost £10m to £163m and margin of 17.9 per cent is an industry best. Importantly, commercial revenue grew 5.9 per cent to £542m, offsetting the impact of local authority budget cuts on concessionary income. True, there is weakness in North East England, but April’s fare increases are sticking elsewhere and Stagecoach expects to at least maintain profit in 2013. Its regulated London bus business swung into the black too, and travellers are snapping up special offers at megabus.com where US sales jumped 54 per cent. Cherry-picking assets from troubled operator Coach America will open up routes in Texas and California, adding at least 1.5m extra passengers this year. At UK rail, like for like revenue grew 9 per cent, similar to the Intercity West Coast joint venture with Virgin which Stagecoach is hoping to retain. A decision is due mid-August.

Shore Capital expects adjusted pre-tax profit of £210m in 2013, giving adjusted EPS of 29.2p (2011: £202.5m and 25.4p).

STAGECOACH GROUP (SGC)

ORD PRICE:264pMARKET VALUE:£1.52bn
TOUCH:264-265p12-MONTH HIGH:291pLOW: 207p
DIVIDEND YIELD:3.0%PE RATIO:9
NET ASSET VALUE:*NET DEBT:£524m

Year to 30 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20081.7616731.85.4
20092.1017118.76.0
20102.1612615.16.5
20112.3919122.07.1
20122.5924029.57.8
% change+8+25+34+10

Ex-div: 29 Aug

Payment: 3 Oct

*Negative equity shareholders' funds