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FirstGroup agrees rail franchise termination fees

The transport group reported a £100m loss after passenger numbers plunged during lockdown
December 10, 2020
  • Termination sums agreed for UK Rail contracts after franchise model scrapping
  • The group remains comfortably within its covenant limits
IC TIP: Hold at 69p

Visibility over revenues has been in acute short supply for transport providers as passenger numbers collapsed in the face of the pandemic. So perhaps FirstGroup (FGP) investors should be grateful for the news that the First Rail business has agreed franchise termination sums with the Department for Transport of £33.2m for South Western Railway and nil for Avanti, following the scrapping of the rail franchise model. It is negotiating new contracts, which would last until April 2023 for SWR, and April 2026 for Avanti. 

However, no further concrete progress has been made regarding the sale of the Greyhound business, with management remaining in discussions with interested parties and cutting capacity in response to the fall in demand. 

At 1.5 times adjusted cash profits, net debt was comfortably below a covenant limit multiple of 3.75. Consensus forecasts are for a return to earnings growth in 2022, at 7.84p a share. Hold. 

Last IC view: Hold, 49.2p, 8 Jul 2020

FIRST GROUP (FGP)   
ORD PRICE:69pMARKET VALUE:£ 836m
TOUCH:68.45-68.65p12-MONTH HIGH:134pLOW: 25p
DIVIDEND YIELD:NilPE RATIO:NA
NET ASSET VALUE:85p*NET DEBT:£2.98bn
Half-year to 30 SepTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20193.53-187-14.3nil
20203.10-100-8.3nil
% change-12---
Ex-div:na   
Payment:na   
*Includes intangible assets of £1.68bn, or 138p a share