Broker snap: UBS cuts target for FirstGroup

30th Mar 2012 11:14

UBS has maintained its relatively cautious view on transport firm FirstGroup, after a gloomy pre-close trading update yesterday, which saw the stock tank.Shares fell by as much 16% on Thursday after the group said that lower economic activity in the north of England is putting pressure on its UK Bus business. Meanwhile for next year, rising costs and limited revenue growth in the region means that the division's margins could only by around 8%, compared to UBS's 9% estimate.The broker does highlight some caution in regards to the company's plan to return margins to 10% in both UK Bus and US School Bus in the next couple of years. UBS hadn't forecasted this to happen until 2015 and said there is "little visibility as to the improvement, given FGP's mixed track record."The target price is cut from 305p to 250p and the broker has maintained its neutral recommendation for the stock."Although FGP has an attractive dividend yield (c10%) we believe it is only sustainable in the event of a successful turnaround the business and the retention of some portion of the rail business (currently two franchises being re-tendered)," UBS said.Shares fell further on Friday, trading down 1.58% at 243.5p by 11:12.BC