Bottom Line: Bus stop only temporary for FirstGroup

Marion Dakers
BAD NEWS, like buses, has come in threes for FirstGroup. Less than a year after the travel outfit was forced to defend its credit rating with a £615m rights issue, weather trouble has dented First’s US arm while analysts grumble that the Thameslink franchise could be slipping from its grasp.

Yesterday’s trading update revealed the extent of the damage done by snowstorms across North America, with Greyhound revenues off 2.9 per cent and school closures knocking 1.8 per cent from FirstStudent.

This followed a gloomy note from Bank of America Merrill Lynch on Tuesday, warning that if First were to lose the fight for Thameslink next month, its cash flow could be £60m short as its First Capital Connect services is absorbed into the new franchise.

Rail makes up more than 40 per cent of First’s revenues, comparable to Stagecoach but below the 70 per cent relied upon by Go-Ahead. For any of Britain’s listed rail firms, the loss of a franchise is a significant blow, but not a catastrophe for First, which has its hat in the ring for the East Coast, West Coast, and Scotrail, among others.

First, in any case, is focusing on repairing its bus business in the UK, which it expects to raise margins into the double digits and make it a far more profitable part of the business than rail.

Providing activists like Sandell are prepared to be patient with this recovery, the returns will be worth waiting for.

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