As the proliferation of cheap flights makes long-distance coach travel unappealing, FirstGroup's (FGP) Greyhound bus service continues to suffer. In May, former chief executive Tim O’Toole said the transport group would take a "new approach" to this part of the business, with a full external review already under way. But, six months later, a £28.5m charge relating to Greyhound's exit from Western Canada has further damaged half-year profitability. But new chief executive Matthew Gregory said now the "loss-making" Canadian operation has closed, Greyhound’s performance should improve. In the meantime, disposal proceeds from bus station properties there could also help make up some of the shortfall.
The First Student school bus brand and First Bus city routes were the main drivers of growth during the first half, with adjusted operating profit up 114 per cent and 57 per cent, respectively, at constant currency. First Student retained 92 per cent of its contracts during the most recent bidding season and exceeded management’s expectations on new business wins. Meanwhile, First Bus benefited from a review of its routes and timetables, although lower high street footfall hurt passenger numbers, as fewer people take the bus into town centres.
FirstGroup’s trains division, FirstRail, includes four weeks of trading from the South Western Rail (SWR) franchise, with sales up 80.7 per cent to £1.22bn – a 5.5 per cent like-for-like increase excluding SWR. But management said industry conditions remain "very challenging", with macroeconomic uncertainty, infrastructure upgrades and industrial action causing widespread disruption. An independent review is under way to determine how to return SWR to profitability.
Analysts at Liberum expect non-rail divisions to offset a tougher period for rail, leading to improved operating profit at group level. For now, the broker expects pre-tax profits of £214m for the year to March 2019, giving EPS of 13.2p (from £197m and 12.3p in FY2018).
| FIRSTGROUP (FGP) | ||||
| ORD PRICE: | 86p | MARKET VALUE: | £1.05bn | |
| TOUCH: | 86-87p | 12-MONTH HIGH: | 120p | LOW: 76p |
| DIVIDEND YIELD: | na | PE RATIO: | nil | |
| NET ASSET VALUE: | 141p* | NET DEBT: | 61% | |
| Half-year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 2.77 | -1.9 | 0.2 | nil |
| 2018 | 3.30 | -4.6 | -0.6 | nil |
| % change | +19 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £1.68bn, or 139p a share | ||||
