More on Stagecoach
Stagecoach
Stagecoach Group has operations in the UK, the USA, Canada and New Zealand. Its businesses which include bus, train, tram, express coach and ferry operations. It operates around 16,000 vehicles and rolling stock and employs around 30,000 people.
It is one of the biggest bus operators in the UK and runs the largest rail franchise, operating a quarter of the passenger rail network in the UK.
In North America, the company is provider of motorcoach, charter, tour and sightseeing services and also runs bus services in New Zealand.
A stronger performance by UK bus and rail saw the company’s first half year (H1) turnover on continuing operations grow 6.7% and operating profits improve by 2.86%, despite a 37% increase in fuel costs. UK buses make up 52% of operating profits and UK rail 29%
UK Bus turnover grew 10.4% to £351.1 Operating profits (excluding amortisations and exceptionals) were £38.2m, 11.3% ahead of last year, while operating margins improved to 10.9% (2003:10.8%). Volumes have improved by 1.3% in the provincial bus networks in the UK and in London turnover grew by 22.1% due to new contracts.
UK Rail turnover grew 8.4% to £234.8m, on the back of better volumes (+4.2%) but narrower margins (9.2% v 9.9% in 2003) resulted in a small increase in operating profits to £21.6m (2003:£21.5m).
Performance has been good, despite the adverse impact of fuel price rises, although the impact of this has been reduced due to hedging. We expect oil prices to remain at a level of $35-45 a barrel in the medium term and this will continue to be a drag on earnings in the medium term. The company’s average fuel costs in H1 were equivalent to US$33 per barrel, full year costs are expected to be at around US$35 and the company has hedged 50% of next years requirement at US$43. (US$10 a barrel movement in prices would affect the company’s annual fuel costs by US$18m-US$19m).
Government plans to merge franchises from 25 to 19 needs to be watched, it is difficult to predict winners and losers at this stage but it is an added risk as is the expiry of the South West rail franchise in February 2007.
The performance at UK buses was boosted by new contracts in London but the company admits that this rate of growth will not be maintained. Organic growth will be slow but the company does hint at further acquisitions. Trading at a prospective PE of 16.1x, at the upper end of the sector despite the lower growth expectations. The yield is reasonable at 3%.
Random picks: Acambis | Bovis | Countrywide | Pendragon | Scottish Power | Smith & Nephew | Spectris | Wellington Underwriting | Xstrata | Brambles