FirstGroup cuts Greyhound valuation

Further hampered by increased competition on some bus routes, FirstGroup does not expect the trend to reverse. A revision of short- and medium-term forecasts has resulted in a £124.4m non-cash impairment on the division’s carrying value to just £179m, forcing an already underwhelming set of half-year numbers into a statutory loss.

A deterioration in the motor claims environment has piled on insurance costs for the North American businesses, forcing a $34m (£26m) provision to bump up protections for prior year claims, a $73.1m exceptional item related to prior year settlements, and a $10.1m operating profit hit to reflect a change in the discount rate.

The development initially sent the shares down by a fifth – but a slight recovery ensued. Activist investor Coast Capital quickly pounced, pointing to the series of headaches as fresh evidence that “the North American and UK assets at FirstGroup do not belong together, and will thrive only under different and local ownership with the requisite experience, industry know-how and capital”. The shareholder again took the opportunity to agitate for the sale of the First Student and First Transit operations.

In the UK First Bus shrugged off poor summer weather to post a 1.6 per cent rise in passenger revenue, and expects margin improvements in the second half of the year. Meanwhile, the UK rail franchise posted a 4.9 per cent bump to the top line, and the Competition and Markets Authority has indicated it could accept the remedies offered on the group’s successful bid to run the West Coast line in a joint venture with Trenitalia. The latter was cited as a reason for an “increased” group outlook, by which management presumably means earnings would rise were it not for the adoption of new accounting rules.

Consensus forecasts are for earnings per share of 14.2p for the year to March 2020, rising to 14.9p in FY2021.