What is driving Firstgroup’s returns against rival Mobico and Britain’s train operators?
Investors in Firstgroup are set to rake in a bumper payout this year.
The FTSE 250 transport giant announced on Tuesday a dividend hike of 45 per cent to 5.5p, as profit rose by more than a quarter to £204.3m.
It continues a strong year for the firm.
Shares are up around 20 per cent in the last 12 months, in stark contrast to its transport rival Mobico Group’s, which are down over 55 per cent.
What’s driving the growth?
At the centre of Firstgroup’s performance is strong demand across both its rail and bus segments.
Total rail passenger journeys reached 274m in full-year 2024, a 10m jump on last year. Critically both its open access and train operating company’s, which include Avanti West Coast and South Western Railway (SWR), finished ahead of expectations.
That offset the impact of ongoing industrial action across Britain’s railways and faltering performance and punctuality at the likes of Avanti, which is facing calls for its service to be nationalised.
What has become clear in recent results is the growing importance of Firstgroup’s open access segment, Lumo and Hull Trains, to its overall operation. Since 2021, Lumo has carried more than 2.5m passengers and Hull Trains added around 14 per cent more capacity over the last year.
The open access model means operators take full commercial risk while remaining unburdened by hefty government franchising fees. It is growing rapidly in the UK.
Part of the fear surrounding Firstgroup’s share price concerns Labour’s plans to renationalise Britain’s railways. Shares in Firstgroup fell on the announcement in April and its CEO has warned Labour poses a “risk” to its business.
But based on the growth seen by open access providers, Labour has pledged to back the model despite wider nationalisation, leaving Lumo and Hull largely unaffected by a change in government.
Firstgroup investors will also be reassured by a booming performance from its bus business. According to Liberum analyst Gerald Khoo, “Bus revenue growth and margin improvements” will be the “most impactful” on performance in the long-run.
“We expect more of the same as the Bus division closes in on its longstanding 10 per cent operating margin target,” Khoo added.
Rail and bus demand aside, Firstgroup has pursued a strategy of expansion in recent years and this has underpinned investor confidence in its future.
The company has sought out new opportunities, with train services explored between London and Sheffield and an extension of services from London via Edinburgh to Glasgow.
It has also been on somewhat of an acquisition journey, taking over York Pullman Bus division in March, which offers rail replacement services, private hire and school and college transport.
Growth looks set to continue.