FirstGroup has suffered a series of blows to its rail business recently, losing existing franchises and failing to win others.
But it believes that improvements in its US and UK bus services will large offset lower rail earnings in the future. The company reported a 13.3% rise in full year operating profits to £303.6m, with an improved performance from its First Student and UK bus businesses, along with strong growth from its - now shrinking - rail business. Chief executive Tim O’Toole said:
We currently anticipate strong progression in our non-rail businesses, driven mainly by the ongoing turnarounds of First Student and UK Bus, to largely offset the substantially lower contribution from UK Rail as a result of the end of the First ScotRail and First Capital Connect franchises.
The positive comments have helped push FirstGroup’s shares up 5.7p or nearly 5% to 125p. The company also announced that finance director Chris Surch would retire in January.
Analyst John Lawson at Investec said:
FirstGroup’s prelims contained no major surprises, with the like for like revenue and margins trends largely as indicated in the pre-close update. Net debt was broadly where guided, with a net debt/EBITDA ratio of 2.25 times, as expected. Looking ahead, we do not expect to make any significant forecast changes and, from a trading viewpoint, it seems to us that the continued turnaround in First Student will be one of the key talking points today (with average prices up by 5% so far in the 2015 bid season). A solid outcome.
Gert Zonneveld at Panmure Gordon said:
Full year numbers were in line with expectations. The shares have performed strongly in recent months and hit our target price, which is why we downgrade our recommendation from buy to hold with a 120p target price
