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Stagecoach slides 3% as it warnings of "challenging" rail outlook

Discussion in 'Market News' started by Lily, May 4, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Company blames slowing consumer growth, terrorist concerns, low fuel prices

    A disappointing trading update has put the brakes on rail and bus group Stagecoach.

    The company’s shares have dropped 8.4p or 3% to 259.6p after it said the outlook for the UK rail industry was more challenging than this time last year:

    Although growth trends continue to vary across the different parts of the rail industry, overall industry rate of revenue growth has slowed in recent months...

    We believe the reduced rate of growth reflects the effects of weakening consumer confidence, increased terrorism concerns, sustained lower fuel prices, the related effects of car and air competition, slower UK GDP growth and slowing growth in real earnings.

    Divisional revenue growth rates appear to have slowed slightly, except in North America where there has been a slight improvement. Management’s commentary on the outlook in UK Rail appears downbeat, citing slower revenue growth in recent months.

    April 2016 forecasts [are] probably not changing materially, but possible downside risk to 2017.

    Stagecoach says that it is “on course” to achieve its 2016 adjusted earnings per share expectation. But understanding how the slowdown in UK Rail and the group’s view of a more challenging sector outlook now feeds into East Coast’s prospects is a key issue raised. Additionally, we continue to see ongoing slow growth in UK bus as a source of continuing margin pressure for the group’s core unit.

    The outlook for UK rail industry is seen as “more challenging” than a year ago and trends have slowed (like for like growth at 2.5% over 48wks versus 4.6% at 40 weeks in the directly operated franchises mathematically suggests around down 8% over the last 8). At West Coast, revenues appear to be down over 5% over the last 5 weeks. We expect focus will be on understanding the implication of all this on East Coast specifically. As a new franchise on which Stagecoach took a 90% interest that was bid on the assumption of compounding growth, this is likely to be a key focus for discussion.

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