FirstGroup PLC (LSE:FGP)’s value is “set to be unlocked” in the upcoming years, according to Berenberg, with cash returns to shareholders potentially increasing.
Analysts at the bank believe the transport operator could be set to return £800mln over the next three to five years for several reasons.
Firstly, management is confident it will receive more than expected from the sale of its Greyhound assets.
Berenberg said the weakening of sterling against the dollar means the final figures could translate into a higher sterling number, which the broker estimates might be almost a £100mln increase in cash.
FTSE 250 constituent FirstGroup confirmed several contracts that under threat as pre-existing rail franchises shifted to the government’s new national rail contracts (NRC).
FirstGroup signed its NRC for its Great Western Railway operating company on slightly better terms than anticipated, with the signing of the final contracts for Avanti and TransPennine to provide a similar boost.
A 163.6p per share takeover offer by American private equity firm I Squared Capital reaches its final deadline on 18 August but has been rejected by management and major shareholder Schroders.
Berenberg's target price was raised to 160p from 150p with an unchanged 'buy' rating.