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Stagecoach looks abroad as founder disembarks after rail failures

The FTSE 250-listed transport company said it has been assessing overseas markets as it will not bid for new rail franchises in the UK

Stagecoach Group PLC - Stagecoach looks abroad after collapse of UK rail franchises

Stagecoach Group PLC (LON:SGC) founder Brian Souter is getting off at the next stop as the bus and train operator looks to diversify overseas after the collapse of all its rail franchises.

First-half results were broadly in line with forecasts and management's expectations for full-year earnings per share remain unchanged, with “positive” long-term prospects seen for public transport.

READ: Stagecoach hits the buffers as Liberum knocks to ‘hold’ amid rising political risk for bus services

The FTSE 250-listed transport company said it has been assessing overseas markets where there is “low political/regulatory risk, contract opportunities that offer an appropriate risk-reward balance, a positive economic outlook and positive demographic factors,” with higher returns than used to come in from North American operations.

A first bid was submitted to the Swedish authorities to operate a railway running outside Stockholm, which would see passenger revenue risk remain with the local authority, with contracts awarded in spring 2020.

The news comes less than a year after the sale of its North American division, which the company said would allow management to focus on growth opportunities in the UK.

However, this year the Scotland-headquartered group had to wave goodbye to all rail franchises in Britain, being barred from some bids and saying it has “no intention” to make any more attempts in favour of keeping its homeland focus on bus, coach and tram operations.

"Underwhelming" numbers

In the six months to 29 October, Stagecoach posted a 21% drop in revenue to £800mln, reflecting UK rail sales plunging 59% to £146mln, with London buses dipping 6% to £120mln and supported by UK regional operations inching up 1% to £535mln.

Profit before tax was 26% higher compared to the same period last year at £65.9mln, while earnings per share swung to 9.7p against last year’s loss of 5.5p. Cash in the bank was 33% lower at £114mln.

Management said the bus market conditions in rural areas and the northern half of the country will remain “challenging” in the short-term, although revenue growth should perk up in the second half.

Changes in bus services models in areas such as Manchester are likely to hit profits but operations in London are expected to bring some joy, with a 5% increase in contracted annual bus mileage to add to next year’s results.

In a separate statement, Stagecoach announced that Souter, who founded the company in 1980, will step down as chairman on 31 December but will stay in the board as a non-executive director.

Ray O'Toole, currently non-executive director, will step in to his vacated chair.

Broker Peel Hunt said the interim results were “just about” in line with expectations but “underwhelming”.

“Given how weak the stock has been there may be some relief that results were not even worse,” analysts added in a note to clients.

“Sales growth is expected to improve in H2 and the rise in fuel costs should moderate, but the geographic exposure, with a heavy weighting to challenging areas such as the North of England and Scotland, is unhelpful.”

Shares were up 6% to 132.8p at the opening bell.

Quick facts: Stagecoach Group PLC

Price: 44.24 GBX

LSE:SGC
Market: LSE
Market Cap: £243.56 m
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