Transport giant Firstgroup is expecting bumper profits in its half year results this Thursday amid strong passenger volumes on bus and rail.
Analysts have forecast a £13m rise in underlying profit to £95m and £4.7bn in sales for the full year to March 2024, while investors are currently looking forward to a 4.5p dividend – 18 per cent higher.
In stark contrast to its struggling rival, National Express owner Mobico, Firstgroup’s trading performance has been bullish this year, with shares up 80 per cent.
The operator raised forecasts back in March and beat them again in June, when executives reaffirmed its market expectations for fiscal 2024. A further trading update in October sent shares to the top of the FTSE 250, after the company raised its profit outlook to £12m-£15m on better than expected demand.
Firstrail, which includes South Western Railway, Hull Railway, Great Western Railway and a 70 per cent stake in Avanti West Coast, is expected to cash in on the post-pandemic recovery in travel demand and a return to office working on Thursday.
The performance of Firstbus is also likely to improve, with cost efficiencies, fleet electrification and the benefits of acquisitions in Essex, Northern Ireland and Bristol accelerating progress towards a 10 per cent margin target.
The group has largely avoided the impacts of rail strike action, with operators Lumo and Hull trains unaffected by walk-outs and its bus segment benefitting from increased demand on the suspension of railway routes.
But challenges to investor confidence remain. As a general election looms, analysts are concerned that Labour’s newly touted re-nationalisation policy could damage Firstgroup’s remarkable share price rally.
“I think it is a threat and risks sentiment to the sector,” Alexander Paterson, research analyst in transport and energy services at Peel Hunt, told City A.M.
“Firstgroup is running three franchises and they all end at certain points in time or the end of the core period, and if they were nationalised clearly there would be a loss of income,” he explained.
That said, concerns over the impact of public ownership are unlikely to have a huge impact on its outstanding share price performance in the short term amid a slew of positive announcements.
A $124m (£99.5m) partnership with Hitachi to lease up to 1,000 electric buses was revealed earlier this week and Russ Mould, investment director at AJ Bell, described it as a “major step in the fleet renovation programme.”
Mould added that Firstgroup was now much further advanced in its corporate restructuring, after “brushes with activist investors,” a failed takeover bid from the US-based private equity firm I Squared and “a major asset disposal, which shored up the FTSE 250 firm’s balance sheet.”