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HSBC downgrades Stagecoach, upgrades FirstGroup as UK travel “lacks spark”

Analysts see upside in FirstGroup's Greyhound sale, while Stagecoach is facing a tough market now that it is a pure UK bus operator

HSBC on UK travel sector

Stagecoach Group PLC (LON:SGC) shares fell on Wednesday, hit be a downgrade to ‘reduce’ from ‘hold’ by HSBC in a massive sector review in which the global bank's analysts said the UK travel sector “lacks any immediate spark.”

Transport rival FirstGroup PLC (LON:FGP), however, was upgraded to ‘hold’ from ‘reduce’ due to the HSBC analysts's optimism in their portfolio review.

READ: Stagecoach Group: last stop for the founders

Stagecoach saw its target price cut to 125p from 140p as the analysts pointed out that the firm has now become just a bus operator facing a tough market, having exited UK rail.

The analysts said building a portfolio of international operations would help the FTSE 250-listed transport company, which is currently bidding for a Swedish rail contract, but they think it will take a while to yield results.

They also noted that there are chances for a return to UK rail operations if Stagecoach wins a court injunction it is persuing against the Department for Transport, which excluded it from a franchise bid because it refused to accept risk over employees’ pensions.

Meanwhile, FirstGroup’s target price was upped to 130p from 100p although the HSBC analysts said they “continue to be underwhelmed by the trading performance” and “think investors should be cautious on the break-up story”.

READ: FirstGroup's South Western Railway franchise may be nationalised

The FTSE 250-listed firm currently has a list of assets up for sale, including its US School bus business, Greyhound US coaches, and UK bus operations.

The HSBC analysts noted that the Greyhound division sale is said to be at advanced stages, and it could be completed at a higher valuation than previously estimated, but it may take longer to let go of the other divisions.

Shares in Stagecoach shed 2.4% to 138.80p in late morning trading, while FirstGroup shares slipped 0.4% to 124.30p.

Quick facts: Stagecoach Group PLC


Price: 68.15 GBX

Market Cap: £376.74 m

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