North Americans aren't travelling long distances by bus now that airfares are cheaper. This is proving problematic for public transport operators, prompting FirstGroup (FGP) to close part of its Canadian service. Now Stagecoach (SGC) is taking a similar approach, announcing a possible sale of some or all of its North American bus business, including long-distance coach brand Megabus. During the last financial year, the transport group was forced to take an £85.4m non-cash impairment charge "to reflect a revised view on long-term profitability" in the US. This resulted in a £19m operating loss, compared with a £102m profit this time last year, and effectively wiped out statutory pre-tax profits.
Running UK rail contracts has also proved difficult. Indeed, sales at the UK rail business fell 62.7 per cent to £335m, while operating profit nearly halved to £11.5m. The division did benefit from ending contract issues relating to the South West Trains (SWT) franchise, but Liberum admitted this was the "main driver of outperformance". Currently, Stagecoach is bidding to run the South Eastern, East Midlands and West Coast Partnership networks, and expects a decision from the Department for Transport (DfT) in the first half of 2019.
Meanwhile, a successful UK bus business seems highly dependent on location. Stagecoach did well in regional areas, with operating profit up 5.8 per cent to £65.2m thanks to a 40 basis point margin expansion to 12.4 per cent. But London was more difficult, with operating profit down 6.2 per cent to £6.1m following a margin contraction from 5.1 per cent to 4.7 per cent. Management called the performance "disappointing", and admitted short-term margin pressure would persist.
Analysts at Liberum expect adjusted pre-tax profits of £129m during the year to April 2019, giving adjusted EPS of 18.6p, down from £145m and 22.3p in FY2018.
| STAGECOACH (SGC) | ||||
| ORD PRICE: | 181.3p | MARKET VALUE: | £1.04bn | |
| TOUCH: | 181-181.5p | 12-MONTH HIGH: | 187p | LOW: 124p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | NA | |
| NET ASSET VALUE: | 31p* | NET DEBT: | £461m | |
| Half-year to 27 Oct | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017(restated) | 1.79 | 96.7 | 13.6 | 3.8 |
| 2018 | 1.23 | -22.6 | -5.5 | 3.8 |
| % change | -31 | - | - | - |
| Ex-div: | 24 Jan | |||
| Payment: | 06 Mar | |||
| *Includes intangible assets of £75m or 13p per share | ||||
