After last month’s announcement on the troubled East Coast rail franchise, you would imagine that management at Stagecoach (SGC) might prefer a low-profile response to the transport group’s latest half-year figures – no point in rocking the boat. It did note that “UK rail franchises [are] moving to a more balanced risk profile”; that’s one way of putting it.
The decision by the Department for Transport to replace the franchise in 2020, as opposed to the originally contracted expiry date of March 2023, resulted in a share price surge, as the chances of default receded. However, with the taxpayer now effectively on the hook for anything up to £2bn, the decision is already drawing heavy criticism in Westminster, and the public accounts select committee is already being urged to delve into the matter. Critics will cite it as the latest example of privatised profits giving way to socialised losses, but even the most ardent proponent of free markets would struggle to deny that the original rail privatisation programme under John Major's government was a dog’s breakfast.
Shareholders in Stagecoach needn’t concern themselves with these distractions. The group turned in a passable operating performance, with lower bus revenue and pressure on passenger volumes partially offset by improved revenue streams in North America. The East Coast franchise continues to be offset against the onerous contract provision taken in the previous financial year, while the cessation of losses associated with the disposed-of megabus Europe operation will bolster operating performance going forward.
Excluding the contribution of expired franchises, UK rail revenue was 3 per cent up on the 2016 half year at £596.6m, while a 60-basis point increase in the underlying margin saw adjusted operating profit increase by 11 per cent to £21.7m.
It was a case of tinkering at the margins within the UK regional bus segment, where flat like-for-like revenue was coupled with a 60-basis point reduction in the operating margin. Management pointed to improvements in revenue and journeys per vehicle mile, together with the “fastest growing contactless transit scheme in Europe”, but the underlying challenge is linked to ongoing pressure on concessionary, tendered and school revenues. The squeeze on the national finances is being felt through the provinces, so we shouldn’t expect these pressures to alleviate anytime soon.
Liberum gives adjusted pre-tax profit of £137m for the April 2018 year-end, leading to EPS of 20p, against £151m and 23.3p in FY2017.
| STAGECOACH (SGC) | ||||
| ORD PRICE: | 180p | MARKET VALUE: | £1.03bn | |
| TOUCH: | 180-181p | 12-MONTH HIGH: | 225p | LOW: 151p |
| DIVIDEND YIELD: | 6.6% | PE RATIO: | 28 | |
| NET ASSET VALUE: | 49p* | NET DEBT: | £483m | |
| Half-year | Turnover | Pre-tax | Earnings per | Dividend |
| to 28 Oct | (£bn) | profit (£m) | share (p) | per share (p) |
| 2016 | 2.00 | 89.5 | 12.7 | 3.8 |
| 2017 | 1.80 | 96.7 | 13.6 | 3.8 |
| % change | -10 | +8 | +7 | - |
| Ex-div: | 25 Jan | |||
| Payment: | 7 Mar | |||
| *Includes intangible assets of £192m, or 33p a share | ||||
