FirstGroup PLC shares soared 12% in early exchanges after the company reported better-than-expected results, a fresh share buyback and a much improved dividend.
Liberum analyst Gerald Khoo said: "The results for the year to March 2023 were ahead of our forecasts and consensus across the board.
"Relative to our estimates, the main areas of outperformance were Rail and interest costs. However, this should not detract from the performance in Bus, where margins showed further improvement," he added.
The bus and train operator announced an additional buyback of £115mln following receipt of proceeds resulting from its North America exit while a final dividend of 2.9p meant a more than trebled total payout for the year of 3.8p, up from 1.1p.
"The better-than-expected earnings fed into a much bigger dividend increase than we had assumed," said Khoo.
FirstGroup backed current-year guidance despite challenging trading conditions but said in the 52 weeks to 25 March 2023, revenue fell by 15% to £4.76bn from £5.59bn the year prior while pre-tax profit tumbled to £128.7mln from £654.1mln.
FirstGroup highlighted group adjusted attributable profit which more than doubled to £82.1mln, ahead of expectations, from £36.2mln.
First Bus revenue increased to £660.0mln from £570.0mln, more than offsetting the reduction in government funding, which decreased by £42.8mln to £86.5mln. Operating margin improved in the second half to 7.9% despite ongoing inflationary pressures.
Liberum's Khoo said: "Net cash was also better than we had forecast, with the dividend also well ahead of our assumptions and the share buyback plan extended by £115mln."
He has raised his 2024 financial year pre-tax profit forecast by 13% to £110.8mln from £97.7mln and EPS estimates by 16% to 11.2p.
Liberum has a 'buy' rating on FirstGroup with an increased price target of 180p, up from 165p.