UK and North America-focused buses and trains operator FirstGroup PLC (LON:FGP) is enjoying better fortunes across the pond than in its home market.
Reported revenue in the third quarter of the group’s financial year was up 12.8%, thanks entirely to favourable currency movements; stripping out foreign exchange movements, revenue was unchanged year-on-year.
Growth in North America was offset by previously announced rail franchise changes and First Bus trading.
The final three months of 2017 was like-for-like (LFL) passenger revenue at the UK First Bus division slide 0.6% from the previous year’s level, but First Rail’s LFL revenues were up 1.1%.
The iconic Greyhound bus operators grew LFL revenues 1.2%, while the First Student school bus business saw a 1% rise in LFL sales.
First Transit was the star performer, however, with LFL sales up 5.5%. The unit benefited from the commencement of new business, including the successful mobilisation of the group’s first US commuter rail contract in Denton, Texas.
"Our overall trading performance continues to support our expectation of good progress for the current year. Our substantial North American operations are delivering encouraging performances and are benefiting from currency tailwinds, but we continue to experience tough trading conditions for our First Bus and First Rail operations in what remains an uncertain UK macroeconomic environment. We remain focused on disciplined execution to deliver significantly increased cash generation for the full year," said Tim O’Toole, chief executive of FirstGroup.
“Looking at the divisional breakdown in constant currency terms, the North American businesses (c80% Op Profit) stand out as the best performers in the period,” said Shore Capital Markets.
The trend of overall trading and expectations for the full year unchanged, the group said.
“Trading in the UK remains difficult. LFL passenger revenue at First Bus for the period of -0.6%, although this is an improvement on H1 growth of -1.3%. Year to date growth now stands at -1.1% vs our current full year expectations of -1.0%. While at First Rail, revenue growth of +1.1% in the period brings year to date revenue growth to 0.8% vs our expectations of -1.0%,” the broker added.
“There is no specific reference to profitability beyond the opening comment that overall trading and expectations for the full year are unchanged; however, we believe this is a strong statement given the market’s continued pessimism around the company. For a company that makes the vast majority of its profits in North America and could well be a beneficiary of any infrastructure led job creation (increased passengers at Greyhound) in the US, the stock has steadfastly refused much beyond 100p.
“However, the market is continuing to overlook the fact that FirstGroup will soon reach an inflection point in terms of cash flows, with earnings rising, capex normalising and interest costs falling (Net FCF Yield March 2018F 13.7%, March 2019F 16.3%), this combination should, in our opinion, drive a significant rerating of the group,” the broker said.
The shares rose 2.5% to 106.6p on the trading update.