FirstGroup cash call turns up early

Oddly, talk of a cash call had subsided recently. However, chief executive Tim O'Toole says delays to rail refranchising caused by last year's West Coast fiasco "changed the trajectory" on when debt repayments could be made - the debt pile is now almost £2bn after costs incurred selling businesses, settling legal claims in the US and rail write-downs. He insists there were no covenant issues, although credit rating agencies are understood to have threatened downgrades to junk status that would have added an extra £50m to First's annual finance bill. They have, we're told, now guaranteed the company's investment grade status. The fully underwritten three-for-two rights issue at 85p is a discount of almost 40 per cent to the theoretical ex-rights price of about 141p - in line with similar deals. About £215m of the net proceeds will pay down debt and the other £370m will help bankroll a £1.6bn investment programme, mostly on new buses for the UK, Greyhound and US school routes.

Much of First's divisions performed as expected during the period, although underlying operating profit still slumped 22 per cent. Flat dollar profits at Greyhound were disappointing and almost £130m of one-offs halved group statutory operating profit to less than £206m. Factoring in £170m of finance costs gets closer to the reported pre-tax figure. And, clearly, that's not enough to support a dividend - so there won't be a half-year payout this year, either. If business improves, First may hand back £50m to shareholders in a year's time, estimated by broker Espirito Santo to be worth about 4p per post-rights share.

"Very preliminary" thoughts from broker Oriel Securities are that post-rights adjusted EPS will be about 9.1p in 2014.