Stagecoach Group PLC (LON:SGC) shares hit the buffers on Thursday after Liberum downgraded the bus and rail operator to ‘hold’ from ‘buy’ citing looming political risks for its bus services.
Liberum’s analysts said regardless of the outcome of next week’s election the FTSE 250 operator of Megabus was likely to face a higher risk of government intervention over its services.
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The broker said Labour’s policies pointed to “extensive intervention in bus services” should they lead the next government, while the Conservative manifesto indicated “greater support for bus franchising and re-regulation” in contrast to the current ‘free market’ system.
“While it should be no surprise that a Labour-led government would be a material negative for Stagecoach, we believe it is under appreciated how enthusiastic a new Conservative administration may be for locally-led bus reregulation initiatives, with the attendant risks to market share and margins for Stagecoach and other private sector operators in the current commercial deregulated market”, Liberum said.
They added that Stagecoach was “clearly the most exposed as the largest [bus] operator in the regions, as well as deriving the largest percentage of group profits from UK regional bus operations”.
Liberum did maintain its target price for Stagecoach at 135p, however, the shares were not far off this level in early trading on Thursday, having fallen 3.6% to 129.2p.