Stagecoach's share price jumps after it announces it will offload European megabus despite fall in profits

 
James Nickerson
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Stagecoach said it has taken steps to mitigate the effects of lower revenue growth (Source: Getty)

Stagecoach's share price has jumped over three per cent in early morning trading, despite its profits sliding, as it announced it was offloading European megabus to FlixBus.

The figures

Stagecoach's full year revenue for 2016 was £3.87bn, a rise for the £3.2bn from 2015.

However, profit before tax fell 37 per cent to £104.4m in the 12 months to 30 April, down from £165.2m.

Earnings per share also fell to 17.1p from 24.3p.

But the company's full year dividend per share was 11.4p, up from 10.5p.

Stagecoach Stagecoach | mobile image

Why it's interesting

Stagecoach's pre-tax profit dropped due to tough conditions, but has announced the sale of European megabus to FlixBus, a German group.

The company said that revenue growth dropped last year and it had to scale back fare rises to boost demand.

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"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 for Transport and other industry partners to meet out obligations, manage contract changes and ensure the continued stability and growth of our rail businesses," Stagecoach said.

The company also said that it had agreed the sale of retail operations of its European megabus arm. Stagecoach will continue to operate a number of European inter-city coach services as a contractor to FlixBus and "look[s] forward to building on our relationship with it".

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The sale of the megabus Europe retail operations will complete on or around 1 July 2016. In addition, Stagecoach has agreed that it will dispose of a number of vehicles to FlixBus or its nominee at a future date.

The payment won't be in cash. Instead, the agreed amount of the consideration for the sale of the retail operations will be satisfied by the issue of a loan note from FlixBus to Stagecoach at completion. Stagecoach expects the loan note to be fully settled by the end of 2017.

What Stagecoach said

Chief executive, Martin Griffiths, said:

We are investing for growth and improving the journeys of our customers through new digital tools, smarter ticketing, and the introduction of greener and more comfortable buses and trains. At the same time, we are taking a prudent approach to controlling costs and ensuring our transport networks meet the changing conditions and requirements of our customers.

We note the result of the recent referendum in favour of the UK leaving the European Union. As with other businesses, we are closely following developments in this area. Although we have little business in Europe outside the UK, we acknowledge the referendum result may lead to continuing economic, consumer and political uncertainty.

Like other business sectors, we are affected by reduced public spending and factors in the wider economy, such as weakening consumer confidence and slowing growth in both UK GDP and real earnings. Public transport also faces the challenge from sustained lower fuel prices, the related effects of car and air competition, as well as traveller concerns over global security. Nevertheless, we have experienced management teams who are working hard to stimulate growth and we have not significantly revised our expectation of 2016/17 adjusted earnings per share.

What others said

David Cheetham, Market Analyst at XTB.com, said:

The preliminary results from Stagecoach contain few surprises that should unduly worry investors, although having said that the macroeconomic backdrop for the international transport group has become much less certain following last week's Brexit vote. As has been the case with the majority of UK stocks, Stagecoach has seen some strong declines over the past three trading days as the decision from the UK to leave the EU has rocked financial markets.

Having said that there is some chance that the company may be well positioned to have some positive repercussions from the Brexit vote as the drop in purchasing power abroad for UK tourists may see an increase in domestic holidays during the summer months, which may provide a windfall for both the coach and train segments of the business.

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