Broker snap: Investec upgrades FirstGroup to 'add'

11th Jun 2013 10:12

Investec has upgraded its rating for transport firm FirstGroup from 'hold' to 'add', saying that it is on the verge of becoming an interesting equity investment again.The company saw its share price sink sharply last month after saying it would be undergoing a £615m capital raising to remove constraints of the balance sheet and reduce leverage. The news came as full-year underlying pre-tax profits slumped 36.5% and the company cancelled its final dividend. Chairman Martin Gilbert also announced his resignation.While Investec admitted that recent experience has been "painful" for existing shareholders, hoped confirmation from ratings agencies that FirstGroup's investment grade status has been maintained should help to underpin shares, the broker said."Whilst clarity on the rights issue take-up is not expected until the end of the month (dealings in the new shares start on June 26th), a properly funded group with cash generative activities should be a more attractive investment," said analyst John Lawson.He said that the group will shortly be putting its balance-sheet issues to bed."Investors should at long last begin to focus on the recovery story (especially in Student and UK Bus), instead of fretting about the group's finances."Investec cut its target price for the shares from 200p to just 110p following the recent slump.