FirstGroup PLC (LON:FGP) shares rose on Tuesday after the transport operator reported year-to-date trading (YTD) performance in line with expectations in spite of significant infrastructure challenges affecting its UK rail franchise and rising costs for drivers resulting from a strong employment market weighing on its US buses business. In a Winter trading update, the FTSE 250-listed group said its First Bus division recorded like-for-like passenger revenue growth of +1.3% in the period from September 2018 to January 2019, while First Rail's like-for-like passenger revenue growth slowed to +4.2% in the period principally reflecting significant infrastructure challenges. FirstGroup chief executive Matthew Gregory said: "Our overall trading performance in the period was in line with our expectations; in particular last summer’s strong bid season in First Student, our largest division, together with further momentum in First Bus, support our unchanged outlook for the full year."
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The group reported overall group revenue growth of 13.7% YTD, while group revenue in constant currency and excluding the SWR (South West Rail) franchise was up 5.5% YTD, with revenue in its road divisions' in constant currency was up 1.9% YTD. In the US, the firm added, Greyhound continued to face a difficult trading environment in certain of its market, although it is beginning to see early signs of improvement from the commercial and operational changes it has made across the network following a strategic review. For First Student, the group said:: “Notwithstanding ongoing driver shortages from the strong US employment market, our solid performance since the start of the school year, together with cost efficiency actions, underpin our confidence in delivering profit growth for the full year.” In early morning trading, FirstGroup shares were up 2.4% to 93.70p.. In a note to clients, analysts at Liberum Capital commented: “An inline trading update supporting an unchanged outlook should reassure. First Student was the only division where performance was good in absolute terms. However, the other divisions mostly showed signs of challenges not getting any worse.” Liberum maintained a 'buy' rating with a 130p target price based on a sum-of-the-parts valuation.