FirstGroup CEO alights

There are two ways to interpret full-year numbers for FirstGroup (FGP).

The charitable take will focus on the transport operator’s ability to swallow a year of travel restrictions and lower passenger numbers and spit out a pre-tax profit of £116m, including discontinued operations.

Even if this did include £71.1m in gains on property disposals and the reversal of £95.7m-worth of rail contract impairments, at least some equity value has been preserved. A year ago, the group flagged doubts over its ability to continue as a going concern.

The scary leverage ratio in the table below is now history. After banking £2.3bn in net proceeds from the sale of First Student and First Transit this month, management says pro-forma net debt has fallen to £100m, excluding lease liabilities. Investors will now receive £500m, worth around 41p a share and up from a previous estimate of £365m, in the autumn.

Coast Capital, the company’s largest shareholder, has another view. Still fuming at the decision to sell the prized US assets for what it argued was below book value, the hedge fund pre-empted these results with a call for chief executive Matthew Gregory to step down.

Obliging or not, he is off after September’s AGM. Gregory “leaves FirstGroup a more focused, resilient and flexible organisation”, says chairman David Martin, who assumes executive duties until a replacement is identified. His first task, fixing relations with Coast, looks challenging.

Consensus forecasts are for earnings of 5.4p per share for the 12 months to March 2022. Add that to the 41p special, and the temptation to buy in is understandable. But what remains is still a company left with lower-margin divisions, finding its feet. Hold.

Last IC View: Hold, 69p, 10 Dec 2020