FirstGroup drops after UBS downgrade to 'sell'

3rd Jul 2015 09:29

Shares in FirstGroup fell 3% after UBS downgraded the stock to 'sell' from 'neutral', pointing to the recent strong rally in the share price to a level above its fair value.With the most recent results, FirstGroup has shown that its margins are improving and heading towards the targets set in 2014, said the Swiss bank.Although this should help drive cash generation higher, in the near term, UBS expects the company's margins to remain below that of peers in the key areas of School Bus and UK regional bus and said that as a consequence so too will free cash flow."Furthermore, while we expect Student to hits its margin target for 2017, owing to the pressures of driver shortages, wage inflation and competition between operators, we assume that the UK Bus target will be met in 2018 rather than 2017," it said.UBS lifted its target price on the stock to 112p from 104, primarily as a result of higher estimates across the divisions following the company's full-year results.