Passengers re-board Stagecoach

Covid-19 blew a hole in Stagecoach’s (SGC) profits. But over the past six months the transport group has seen revenue grow by 27 per cent, while total operating profit has almost doubled to £45.2m. This is largely due to a rise in passenger numbers, driven by the return of schools and universities. Passenger journeys have now reached 70 per cent of 2019 levels, while commercial sales are over 80 per cent. 

A full bounce back is unlikely to arrive soon, however. Management anticipates it will take “some time” for demand for its regional bus services to return to pre-pandemic levels, even if its London bus service is enjoying revenue growth and stable profits. Storm Arwen and changing virus guidance has also hit recent demand.

The government is still helping to keep services running. The Department for Transport, for example, has put in place a £226.5m bus recovery grant to cover the period from September 2021 into 2022. Similarly, in Scotland, the grant payments for continuing bus services have now been extended to the end of March 2022.

State support could turn sour, however. In Manchester, for example, bus services are due to be brought under public control, reversing the privatisation of the bus industry that started under the Thatcher government. Stagecoach warned that the change could impact its share of the Manchester bus market, as well as its profit margins (before Covid, Manchester contributed a hefty £128m of the group's consolidated annual revenue and a higher than average operating profit margin). Stagecoach has launched a legal challenge against the proposed reforms, but the impact on de-leveraging efforts is a real worry.

The group's future is mired in uncertainty, therefore, even if green initiatives push people away from cars and onto public transport in the longer term. FactSet consensus estimates give EPS of 4.4p for the year to April 2022, rising to 11.19p the following year. A very cautious hold.

Last IC View: Hold, 83p, 30 June 2021