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Investec tells Stagecoach investors to ‘mind the gap’

Investec tells Stagecoach investors to ‘mind the gap’
Expectations of Stagecoach’s future market share are “unrealistically high”, the City broker says

The market assumes UK bus and train firm Stagecoach (LON:SGC) will have an unrealistically high share of the future rail market says Investec, which today downgrades the FTSE 250 share to ‘sell’.

Analyst Alex Paterson, in a note on the UK public transport sector, highlighted the negative impact of delays in the rail network – the majority of which he says stem from state-owned Network Rail – as well as the potential impact of ‘the living wage’ on profits.

But, regulatory change is seen as the biggest potential impact for Stagecoach and the broader sector. Specifically, he highlights that the ‘Bus Bill’ and the regional devolution of controls over local bus services as the biggest threat to Stagecoach’s margins.

Whilst downgrading to ‘sell’, Paterson sets a new price target of 300p which suggests some 12% downside to the current price of 344p.

There’s a pair of oil and gas upgrades from Liberum Capital which lifts both BG (LON:BG.) and BP (LON:BP.) to ‘buy’ from ‘hold’ as analyst Jean-Pierre Dmirdjian says the risk-versus-reward has improved for ‘big oil’ stocks.

“Dividends remain a priority and are supported by breakeven at US$50-70 Brent and solid balance sheets,” Dmirdjian said in a note.

Liberum’s target for BG increases to 1,165p, implying 17% upside to the current price of around 988p whereas the BP target moves to 405p suggesting potential for 22% upside to the current price of 330p.

Experian (LON:EXPN) is upgraded by HSBC to ‘buy’ from ‘hold’.

Barclays Capital has downgrade asset management group Close Brothers (LON:CBG) to ‘equal weight’ from ‘overweight’.


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