Stagecoach PLC (LON:SGC) has received a second broker upgrade this week after HSBC joined Liberum in moving its view on the bus and train group up to 'hold' from ‘sell’.
The group has been under the cloud of a poorly performing East Coast rail franchise and the possibility of a further lowering of guidance for the bus division, which could, in turn, threaten the dividend.
A trading update is due on 28 September, but HSBC is not expecting a further downgrade.
East Coast has been provided for, the provincial bus operations may benefit from fare increases and capacity reductions, while North America should have benefited from the recovering oil price.
Against this, HSBC believes the company’s view that it can renegotiate terms quickly on the East Coast may be optimistic and the broker also has doubts over the dividend, given that it is not covering its dividend from bus profits alone and that its other two rail franchises (East Midlands and West Coast) will end in 2019.
Even so, after the recent dip in the shares, the pros and cons look fairly balanced so 'hold' is now the broker’s view with a 160p target price.
Shares were unchanged at 160p after a good rise yesterday following Liberum's note.