Stagecoach shares surge despite profit nosedive amid pandemic
Stagecoach’s shares shot up in early trading today despite revealing a staggering 60 per cent plunge in annual profit in part due to the impact of the coronavirus pandemic.
The bus operator’s shares surged 10.8 per cent to 55.9p as large slumps in revenue and profit for its latest financial year were not as bad as investors feared.
The bus operator posted profit before tax of £40.6m for the 12 months to the end of May today, down from £101.2m the previous year.
It also revealed a 24.5 per cent plunge in revenue to £1.42bn as coronavirus forced it to furlough more than half its regional bus staff and scrap its dividend.
Earnings per share sank from 17.4p last year to just 6.7p. Shareholders will receive a 3.8p dividend, half last year’s total after Stagecoach cancelled its final payout.
Net debt jumped by £100m year on year to £352.1m at 2 May 2020. Though £89m of that related to new accounting rules.
Why it’s interesting
Stagecoach blamed the end of its East Coast and East Midlands franchises in June 2018 and August 2019 for the revenue hit.
And the company said coronavirus was responsible for a third of its profit drop, hurting its regional bus operations since March, when it issued a profit warning. But the end of the two franchises also knocked profit lower, though investors expected it to be worse.
“The FY results were not as bad as feared, beating both our forecasts and consensus,” broker Liberum said.
“As expected, London bus has been supported by its contractual structures and government financial support for regional bus has seen the group remain cash generative, despite lockdown.
“Liquidity remains strong and covenant waivers are in place for the next year.”
The company took on another £325m of bank loans and raised £300m through the Bank of England’s Covid Corporate Financing Facility to survive the pandemic. It also benefited from a sector-wide £400m bus bailout. Today Stagecoach said it has £800m in a mix of cash and loans on hand.
But analysts pointed to Stagecoach’s “very cautious” outlook as a reason for traders to tread carefully.
Stagecoach warned of a lasting impact from coronavirus on people’s travel habits.
The transport firm predicted it would be “some time” before demand returns to pre-coronavirus levels, predicting increased levels of working from home and online shopping.
“The profit warning the transport operator issued in March foreshadowed the implications that Covid-19 would have on the firm, while the government’s advice to avoid public transport has seen earnings drop significantly,” Julie Palmer, partner at Begbies Traynor, said.
“Although a sector bailout package has allowed Stagecoach to continue operating, as the economy gears up to restart again, questions will be raised about the company’s future strategy.
“If Stagecoach can continue to adapt and offer its customers a superior service while the economy recovers, the business should get itself back on track.”
What Stagecoach said
Stagecoach CEO Martin Griffiths said: “We have achieved a creditable set of financial results in what has been one of the most challenging and sobering periods for citizens, communities and economies across the globe in living memory.
“Prior to the Covid-19 pandemic, the business was on track to meet its expectations for the full year. We made good progress in delivering on our three key strategic objectives: to maximise our core business potential, manage change through our people and technology, and grow by diversifying, while maintaining our relentless focus on safety and customer service.
“In responding to the more recent global challenges, we have taken decisive action so that the business remains in as strong a position as possible and well placed to secure the significant long-term opportunities we see for public transport.”