Stagecoach shares climb 15 per cent despite £85m balance sheet blow from US division
Stagecoach shares climbed by 12 per cent this morning despite its writedown of its US, as investors focused on the business’s underlying performance in the UK.
The figures
Stagecoach revenue fell to £1.23bn in the six months to the end of October, down from £1.79bn in the same period in 2017.
Underlying profit before tax dropped from £96.7m to £87m, but investors were expecting just £81.1m.
Net debt grew to £461.2m at the end of October from £395.8m in April, mainly due to losing the Virgin Trains East Coast franchise, while cash flow fell by around £22m to £193.1m.
Earnings per share fell slightly to 12.9p per share, down from 13.6p last year, but Stagecoach maintained a 3.8p interim dividend.
Why it’s interesting
Stagecoach shares soared despite its decline as investors expected an even worse outcome, even with Stagecoach admitting it is trying to wash it hands of its US business.
The firm took a £85.4m impairment charge on the division, discussing a possible sale of “all or part” of the business, which includes the Coach USA and Coach Canada brands.
Shareholders also welcomed Stagecoach raising its full-year earnings per share to reflect out-performing in the UK in the first half of the year.
After a 63 per cent drop in UK rail revenue due to the loss of the Virgin East Coast franchise, Stagecoach saw operating profit halve to £11.5m.
But revenue for its Virgin Trains West Coast joint venture rose 5.1 per cent to £303.2m.
With Stagecoach bidding for three other rail franchises, Helal Miah, investment research analyst at The Share Centre, said losing the East Coast line “was a blessing in disguise as it was a loss-making service”.
Meanwhile the company's bus division improved operating profits by £3.2m to £71.3m thanks to summer travellers taking its Megabus service as well as the rail strikes and disruptions that forced commuters onto its rail replacement buses.
What Stagecoach said
Chief executive Martin Griffiths said:
“We have delivered encouraging results at our UK regional bus business, where we continue to deliver high customer satisfaction. Targeted fleet and technology investment is helping to enhance operational delivery and improve cost efficiency. We continue to innovate across a range of areas including autonomous buses, contactless payment, data analytics and demand responsive transport.
“We are well positioned in UK rail, with three live contract bids and more than 20 years' experience of delivering innovation and investment for customers. We welcome the UK government's rail review as an opportunity to deliver better value and day-to-day performance for passengers, a partnership structure and contracting system which is sustainable for the long-term, and reform of outdated regulations which are holding back customer-focused improvements.
“We are reviewing strategic options for the North America Division and that includes ongoing discussions regarding a possible sale of all or part of the business.
“The group is focused on making further progress in the second half of the year and we have increased our expectation of full-year adjusted earnings per share to reflect the above-forecast rail earnings in the first half of the year.”