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Stagecoach still worth catching

RESULTS: A big increase in train profits is unlikely to be repeated, but trends are encouraging and shares in Stagecoach are the transport sector ones to own
December 5, 2012

A turnaround at East Midlands Trains and a £4m Olympic windfall easily offset the $2-$3m (£1.3m-£1.9m) of business blown away by Hurricane Sandy and meant Stagecoach (SGC) beat forecasts. The second half has started well, too, so hitting full-year targets should be straightforward.

IC TIP: Buy at 299p

Now in revenue support, East Midlands Trains arrived with an underlying operating profit of £22.7m compared with a loss of £6.9m in 2011, steering group operating profit up 34 per cent to £142m. Expect a deal to extend the West Coast franchise, possibly for another year, before the 8 December deadline. The regional bus division impressed, too. Even stripping out the Olympics-related boost and a one-off claim, like-for-like revenue here grew 3.7 per cent and operating profit rose 9 per cent to over £87m - despite high fuel costs and government subsidy cuts. Stagecoach predicts further modest progress in the months ahead - and in London, too, where the once lossmaking bus business increased profit by three-quarters to £9.6m. In North America, like-for-like revenue increased by 37 per cent at the Megabus budget coach operation, although start-up costs are eating into profits - a business to watch for the long term, though.

Broker Nomura expects adjusted pre-tax profit of £210m for the full year, giving adjusted EPS of 28.2p (from £209m and 25.4p in 2012).

STAGECOACH (SGC)

ORD PRICE:299pMARKET VALUE:£1.72bn
TOUCH:298-299p12-MONTH HIGH:300pLow:   228p
DIVIDEND YIELD:2.7%PE RATIO:9
NET ASSET VALUE:*NET DEBT:£552m

Half-year to 31 OctTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.2910810.42.40
20121.4013415.72.60
% change+9+24+51+8

Ex-div: 6 Feb

Payment: 6 Mar

*Negative equity shareholders' funds