Firstgroup stays on course after Greyhound losses collared

1st Apr 2015 07:17

Shares in FirstGroup steamed ahead on Wednesday as it reassured investors with confirmation that trading for the year to the end of March had remained in line with expectations, with progress continuing on its medium-term investment plans.UK rail, and US public bus units First Transit and First Student remained solid, while UK bus grew like-for-like volume growth and Greyhound continued to manage its cost base in the face of lower passenger demand due to cheap gas.Shares in the FTSE 250 company had been on the slide in recent weeks on concerns over Greyhound sparked in January, but chief executive Tim O'Toole said that the inter-city coach business had been quick to "flex" its mileage, timetables and pricing in response to the rapid decline in passenger demand and was now "on track" with its yield-management programme.Greyhound's like-for-like sales in the fourth quarter are expected to decrease by 5.5%, meaning US dollar revenue for the year is expected to be flat, at margins modestly below last years 7.4%. Broker Shore Capital said this was a "robust performance in the circumstances" but expected to cut its full year expectations.After successfully re-jigged its pricing plans in the school bidding season, First Student, the US urban bus division, expects a 1.3% improvement in US dollar revenue at a margin of roughly 7.5% as adverse weather offset pricing and cost-cutting measures.Looking forward, management is encouraged with First Student's new business results at this stage of the bid season and, with $20m of its targeted $50m annual cost savings made, is confident of delivering a double digit margin in the medium term.At UK Bus like-for-like revenue growth is expected to arrive at 2.3% at margins higher than last years 5.0%. Bus revenues and margins, thanks to fare rebasing actions a year ago, are expected to strengthen in 2016.UK Rail has been robust, as strong demand for train travel drives passenger volume and revenue growth. Buoyed by the significant recent winning of the major Great Western UK rail franchise, O'Toole is increasingly optimistic that group transformation begun last year will see a noticeable impact in 2015/16.He said progress was being made with multi-year transformation plans to drive improvements in returns and sustainable cash generation over the medium term. Over time he also expects financing costs to continue to reduce, as cash generation increases and the group's relatively high-coupon bonds mature.ShoreCap noted that a £300m 8.13% bond is repayable in September 2018 and a £250m 6.13% bond is repayable in January 2019."The lowering of the interest cost will, in our opinion, have a significant impact in the cashflow generation of the group," analysts wrote.