A disappointing trading update has put the brakes on rail and bus group Stagecoach.
The company’s shares have dropped 8.4p or 3% to 259.6p after it said the outlook for the UK rail industry was more challenging than this time last year:
Although growth trends continue to vary across the different parts of the rail industry, overall industry rate of revenue growth has slowed in recent months...
We believe the reduced rate of growth reflects the effects of weakening consumer confidence, increased terrorism concerns, sustained lower fuel prices, the related effects of car and air competition, slower UK GDP growth and slowing growth in real earnings.
We have taken and will take further steps to mitigate the effects of lower revenue growth, focusing on cost control and additional initiatives to grow revenue. We continue to work constructively with the Department of Transport and other industry partners to meet our obligations, manage contract changes and ensure the continued stability and growth of our rail business.
Like for like revenue growth in its rail division - mainly South West trains and East Midlands trains - was 2.5% in the last 48 weeks. Growth at its mainline joint ventures was higher, with Virgin Trains East Coast up 4.9% and West Coast 4.6% better.
UK bus growth was just 0.2%, its London bus business was up 1.1% and its North American division fell by 3.4%.
It said it was on track to meet full year earnings expectations.
In a sell note, analysts at Liberum said:
Divisional revenue growth rates appear to have slowed slightly, except in North America where there has been a slight improvement. Management’s commentary on the outlook in UK Rail appears downbeat, citing slower revenue growth in recent months.
April 2016 forecasts [are] probably not changing materially, but possible downside risk to 2017.
Jefferies analyst Joe Spooner said:
Stagecoach says that it is “on course” to achieve its 2016 adjusted earnings per share expectation. But understanding how the slowdown in UK Rail and the group’s view of a more challenging sector outlook now feeds into East Coast’s prospects is a key issue raised. Additionally, we continue to see ongoing slow growth in UK bus as a source of continuing margin pressure for the group’s core unit.
He added:
The outlook for UK rail industry is seen as “more challenging” than a year ago and trends have slowed (like for like growth at 2.5% over 48wks versus 4.6% at 40 weeks in the directly operated franchises mathematically suggests around down 8% over the last 8). At West Coast, revenues appear to be down over 5% over the last 5 weeks. We expect focus will be on understanding the implication of all this on East Coast specifically. As a new franchise on which Stagecoach took a 90% interest that was bid on the assumption of compounding growth, this is likely to be a key focus for discussion.
