Stagecoach shares rev up as it strikes an optimistic note

 
Courtney Goldsmith
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Stagecoach was boosted by a DfT announcement about new train lines last week
Stagecoach was boosted by a DfT announcement about new train lines last week (Source: Stagecoach)

Shares in Stagecoach Group rose more than four per cent this morning as the company beat analysts' expectations and said its 2018 earnings forecast was unchanged, despite issues at its UK bus arm.

The figures

The transport firm's profit before tax for the six months to 28 October rose to £96.7m from £89.5m the previous year, while group revenue fell to £1.8bn from £2bn.

Stagecoach held its dividend at 3.8p per share and said any dividend growth at the end of the year would be "modest".

Shares in the company rose 4.76 per cent to 184.8p in morning trading.

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Why it's interesting

Stagecoach, which operates in the UK, US and Canada, was boosted last week by the government's plans to expand Britain's rail network, which could include restoring old services cut in the 60s and 70s.

"The recent announcement from the DfT [Department for Transport] in regards to rail has certainly reduced the tail risk that was clearly preoccupying some investors, and today's results give us cause for increased optimism. It has been sometime since Stagecoach delivered numbers ahead of forecasts across the board," said Martin Brown, an analyst at Shore Capital.

However, Brown said Stagecoach's bus division was still lagging, with a particular lack of momentum in volumes.

"The shares are not expensive, however, an improved outlook for UK bus is required to really move things forward," he said.

Stagecoach added that revenue trends in North America were improving.

Read more: Stagecoach thrown off track by "onerous" East Coast contract

What Stagecoach said

Chief executive Martin Griffiths struck a positive note, saying the company had made progress across its businesses.

Griffiths said: "In UK rail, we are working with the Department for Transport towards new contracts at Virgin Trains East Coast and Virgin Trains West Coast. Our East Midlands Trains franchise has been extended through to March 2019, with the prospect of us agreeing a further direct award franchise from March 2019, and we are part of shortlisted bids for new South Eastern and West Coast Partnership franchises.

"In bus, the actions we have taken on pricing, services operated and commercial initiatives across our regional UK bus operations are delivering the results we expected, while our London bus business has had success in winning new contracts. In North America, we have seen improved revenue trends, new contract wins and growth in profit."

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