Concerns over rising wages among bus and coach drivers prompted broker heavyweight JP Morgan to cut its price target on transport group Stagecoach (LON:SGC).
It has lowered the price target to 131p from 149p (current price: 160.50p). It rates Stagecoach shares 'underweight'.
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With August 2017 RPI (retail price inflation) increasing 3.9% year-on-year, and seemingly little ability to grow revenue, analyst Samuel Bland said he was concerned on the impact of rising wage inflation on ex-rail profits over time.
Staff costs stand at 50-60% of revenue, with a heavily unionised labour force, he noted.
"Historically, wage inflation for bus & coach drivers has exceeded the national average. Due to typical 1-2 year wage agreements, we expect acceleration in wage inflation at Stagecoach to lag a pick-up in price inflation."
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JP Morgan also noted that 1% of additional wage inflation in the regional bus business impacted group operating profit by around 4%.
Another area of concern, according to JP Morgan is that volumes of national rail and bus travel is showing a downward trend and that the East Coast revenue growth YTD (year to date) of 4.2% is below the provisioned level of 5%.
Shares in Stagecoach fell 0.80% to 160.50p.