The torrid year for the rail business at Stagecoach (SGC) has culminated in a dividend cut, with the annual rate falling from 8.9p in FY2017 to 3.9p this time around. Chief executive Martin Griffiths called the new payout “sustainable”, in that it has been tailored to a level where it can be covered by non-rail cash flows. An interesting comment, considering Mr Griffiths' optimism around the group’s current bids for rail franchises, including South Eastern, East Midlands, and West Coast Partnership.
The euphoria around the rail business from back in November appears to have faded. At the time Stagecoach announced that its operation of the East Coast franchise would come to an early end in 2020, ahead of the original March 2023 agreement. The early end reduced the risk that the group would default on the franchise. Fast forward to February, and the breach of a key financial covenant left Stagecoach unable to operate the routes, given the lack of available funds, for more than a few months. The Department for Transport then stepped in to appoint an operator of last resort. This set of results revealed £85.6m worth of exceptional costs relating to East Coast.
The end of the South West rail franchise in 2017 contributed to the fall in revenue, while group operating profit fell 3 per cent to £180m. Payments linked to the unwinding of the South West franchise, the reversal of cash-flow timing benefits at East Midlands trains after the contract extension, and the costs of ending East Coast will result in an expected cash outflow for the year to April 2019.
Bad weather and government changes to free fare eligibility meant that revenue in the regional UK bus division were flat at £1.01bn. Sales for London buses fell 4.4 per cent, while added staff costs, operating lease costs, and the impairment of vehicles pushed the operating margin here down from 7 per cent to 5.3 per cent.
Analysts at Liberum expect pre-tax profits of £128m in the year to April 2019, giving EPS of 18.6p, falling to £123m and 17.6p in FY2020.
| STAGECOACH (SGC) | ||||
| ORD PRICE: | 133p | MARKET VALUE: | £ 763m | |
| TOUCH: | 132.9-133.2p | 12-MONTH HIGH: | 202p | LOW: 124p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 35p* | NET DEBT: | 218% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 2.93 | 158 | 23.1 | 9.5 |
| 2015 | 3.20 | 165 | 24.3 | 10.5 |
| 2016 | 3.87 | 104 | 17.1 | 11.4 |
| 2017 | 3.94 | 17.9 | 5.5 | 11.9 |
| 2018 | 3.23 | 95.3 | 12.3 | 7.7 |
| % change | -18 | +432 | +124 | -35 |
| Ex-div: | 23 Aug | |||
| Payment: | 03 Oct | |||
| *Includes £187m of intangible assets or 33p a share | ||||
