Stagecoach has gone into reverse after its latest update.
The bus and rail company said current trading was satisfactory and it was in line to meet expectations for the year. But it did warn there were “a number of challenges to growing profit in the year ending 30 April 2015.”
Its bus business saw like for like revenues grow 3.2% in the twenty four weeks to 12 October. But it said it was disappointed a proposal for a bus contracting system in Tyne and Wear had been referred to a review board. Stagecoach said there were significant flaws in the scheme and it believed a voluntary partnership proposed by the local bus operators would be a better alternative.
Meanwhile it expects to introduce more megabus services in Europe, but this will result in “a few million pounds” of start up losses in the year, and £20m of extra capital expenditure.
In rail the West Coast franchise has seen strong trading, but the focus in the City is on its prospects for winning the bidding for the East Coast mainline operation.
The company’s shares have slipped 4.1p to 386.4p, but analysts were still positive. John Lawson at Investec said:
Stagecoach delivered another consistent and encouraging message today with good like for like revenue growth in all divisions. Megabus.com continues to do well in North America and in the UK, with Continental Europe as a new area for potential growth (with some additional start-up costs flagged today). In the near-term, however, all eyes will be on the East Coast Mainline rail franchise award. The Stagecoach (90%)/Virgin (10%) consortia is on a shortlist of three bidding groups. We reiterate our add rating.
Gert Zonneveld at Panmure Gordon said:
Overall trading has remained satisfactory, keeping the company on track to meet its full year profit expectations. As one of three shortlisted bidders Stagecoach is in an excellent position to win the new, large East Coast rail franchise (announcement expected in November 2014), which could be worth 25p per share. We retain our buy recommendation.
#Stagecoach trading update fine. Still favourite to win #EastCoast franchise but calls for devolution by eg Key Cities a potential concern.
— Gert Zonneveld (@Gert_J_Z) October 29, 2014
