Broker snap: West Coast win already priced in at FirstGroup

15th Aug 2012 10:57

Panmure Gordon has upped its target price for FirstGroup after the West Coast win for the transport group but has maintained its 'hold' recommendation for the stock.The West Coast franchise, awarded by the Department for Transport, runs from December 2012 to 2026 and has annual revenues of around £900m for FirstGroup. The company expects a compound annual growth rate of 10.4% in revenues, supported by operating investment and backed by substantial capacity increases.Analyst Gert Zonneveld from Panmure said: "The double digit revenue growth forecast looks aggressive and significantly higher than Virgin Rail's 8.5%. Combined with the replacement of the revenue share/support mechanism with a GDP sharing mechanism, we believe there are substantial risks in respect of revenues falling short of expectations."Premium payments, however, are likely to be back-end loaded and in the short to medium term this franchise should provide an attractive contribution to FGP's bottom line," Zonneveld said.Panmure has raised its target for the shares from 230p to 280p to reflect the "significant franchise win", however as the shares have risen strongly in recent weeks, the broker thinks that the win has been largely priced in and maintains its neutral stance on the stock.By 11:10 on Wednesday, shares were trading 7.80% lower at 238.80p.BC