Will investors be willing to buy a Stagecoach ticket following next Wednesday’s half year results?
The transport company has been on a one way journey in 2017. From an opening price of £2.25 the stock hit an 8 year nadir of £1.51 in mid-September. Since then Stagecoach has been ranging between £1.60 and £1.70, and now sits at a current trading price of £1.73.
While Stagecoach wasn’t looking too healthy in the first 6 months of the year, it was managing to hold somewhere between £2 and £2.20. That all changed at the end of June, when the firm revealed its full year figures.
Due to a one-off costs and impairment charges related to the East Coast rail franchise – which Stagecoach, who owns 90% of the line to Virgin’s 10%, claims won’t be profitable until 2019 – pre-tax profit plunged a nasty 83% to just £17.9 million. This, understandably, overshadowed a 1.8% rise in annual revenue to £3.9 billion, especially since pre-tax profit still fell 15% to £158.7 million when those aforementioned charges were stripped out.
September’s first quarter statement was better, but did little to inspire anything resembling a market-turnaround. While like-for-like UK bus revenue fell 0.1% in London and was down 0.4% in the rest of the country, UK rail sales (excluding South West Trains, the contract for which Stagecoach lost in March) jumped 3.8% with a 4.4% increase at Virgin Rail Group (of which Stagecoach owns 49%). The company also stated that it was continuing discussions with the Department for Transport regarding the terms of its ongoing operation of the blasted East Coast franchise.
More recently the stock was lifted from its lows by the news that the DfT would be overhauling the UK’s railways, a ‘new direction’ that includes a joint public and private sector East Coast Partnership from 2020 and a place on the tender shortlist for Stagecoach for the new South Eastern franchise.
In terms of next Wednesday’s interim results, Stagecoach ideally needs to have prevented the like-for-like bus revenue decline from getting any worse, alongside a decent pre-tax profit figure after the full year disaster back in June.
Stagecoach Group (LON:SGC) has a consensus rating of ‘Hold’ with an average target price of £1.99.
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