Stagecoach slides on worries about rail and bus slowdown

Discussion in 'Market News' started by Lily, Sep 28, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Company warns of uncertainty ahead as bus and rail revenues disappoint

    A disappointing trading update from transport group Stagecoach has seen its shares go into reverse.

    The company - whose businesses include joint ventures with Virgin Rail - said full year earnings should be in line with expectations although given a lack of clarity on the outlook for the economy “there is a higher than usual degree of forecasting uncertainty.”

    Passenger volumes continue to be weaker than we have seen in the UK bus (regional operations) division in recent years... Our London division has experience a small net reduction in contracts with Transport for London.

    UK rail industry revenue growth has slowed over the last year and the outlook for the industry remains uncertain, particularly given its sensitivity to economic conditions....We believe the reduced rate of growth reflects the effects of weakening consumer and business 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.

    Today’s trading update confirmed that in the first 16 weeks of the current fiscal year revenue growth in UK bus remained sluggish while divisional rail revenue growth continues to decelerate. We retain our hold recommendation.

    Despite the attractive dividend yield, we are mindful of the challenges at Virgin East Coast and would like to see evidence that the company can achieve the required rate of revenue growth in the high single digits.

    The further slowdown in rail revenue growth (to +1.7% in the first 16 weeks from +2.8% last full year) is likely to cause concern.

    Overall today’s statement is, in our opinion, disappointing, with a number of negative trends across the group, many of which are out with the control of management. What is within management control however is mileage and costs, [and] it appears to us that a reduction in mileage and a clear focus on cost control is behind the re-iteration of management’s expectations for adjusted earnings per share for the year to April 2017.

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