Stagecoach has gone into reverse on disappointment about the performance of its bus business.
The transport group, which recently contentiously won the East Coast rail franchise with partner Virgin, said half year profits had edged up from £105.6m to £108.6m and it was keeping its full year expectations unchanged.
But it has changed the expected contribution mix, with lower profits expected from its UK bus and North American businesses, offset by other areas, including its share of profits from Virgin Rail. In particular its Manchester bus business has seen a significant reduction in profitability due to increased competition leading to lower fares and more services operating.
It also expects an increase in staffing costs to fill vacancies as the economy continues to recover.
Overall the company’s shares are down 28.4p or nearly 7% to 379p, making it the biggest faller in the FTSE 250. Liberum said the half year profits were marginally below its forecast of £110.9m but this could be due to the split between the two half years. It said:
At the divisional level, UK bus was in line, North America and UK rail marginally light, other units in line. Management’s full year expectations are unchanged overall, but with a further divisional mix shift away from regional UK Bus and North America, offset by other divisions. This is a negative for valuation (weaker outlook in the higher multiple divisions).
At Investec, analyst John Lawson said:
Stagecoach remains on track to hit its expected earnings per share figure for 2015, but the group has changed its view around the divisional mix. UK Bus will now be behind previous expectations (competition in Manchester and extra labour costs to plug vacancy gaps caused by the economic recovery) and the North American businesses also may not meet previous expectations (adverse weather in November and some caution around passenger demand, modal shift?). That said, this is a well-run business with solid financials. Add.
