More on Arriva
Arriva
Transport company Arriva announced a 15% growth in pre-tax profits (before amortisation and exceptional items) to £116.3m for the year to December 2004. All divisions have performed well with UK buses recording a growth in operating profits of 9.4%(to £62.6m), UK trains (operating profits up 31% to £31.5m) and international (operating profits up 31.8% to £32.7m).
Group turnover increased by 3% to £1,800.2m and total operating profit was up 8% to £113.7m.
Arriva’s sales in its principal markets, UK Buses, UK trains and international operations improved by 7.8%, 17.5% and 21.1% respectively. Sales declined by 24% in the relatively minor Bus & Coach division (to £17.4m from £22.9m 2003) while they remained flat in the vehicle rental division (at £107.4m, 2003:£109.9m). Arriva generates good cashflows, operational cashflow was up 9.2% over last year to £258.6m.
The key to Arriva’s profitability is the performance of its UK bus operation which contributes to almost half its operating profits and it is pleasing to note that growth in operating profits (+9.4%) is now ahead of turnover growth reversing a the trend seen at the half year. (when growth in operational profits (+7.6%) lagged turnover growth(+8.42%). Operating profits grew faster than turnover (indicating that margins have widened) in UK trains (turnover grew 17.5% but profits grew by 31%) and in the international business (turnover grew 21.1% and profits grew by 31.8%.)
Not surprisingly, Arriva seems to be looking for growth in Europe (where profits and sales are growing the much faster than in the UK) with acquisitions in Germany, Italy and Denmark. Arriva bought Prignitzer Eisenbahn Gruppe (PEG) that operates rail services around Berlin and in the industrial Ruhr region in April and acquired Regentalbahn AG, a rail operator based in Viechtach, eastern Bavaria in October. In May they acquired a 49% interest in Societa Autoservizi F.V.G. S.p.A. (SAF), an operator of bus services in the north east Italy, and in July, a Danish bus operator Wulff Bus A/S (Wulff), which runs city and regional bus services in Jutland and Copenhagen. In total, Arriva has made four significant acquisitions last year at a cost of £87.5m plus net debt inherited of £32m. The company bought Sippel, a German bus company after the year end for £15.4m.
The new acquisitions contributed £4m or 12.3% of the total operating profit of the international division. More significantly, the acquisitions accounted for half the growth in the division’s profits.
At the current price of 551p, Arriva is on a propsective PE of 13.8x which is at the high end of the sector, but the steady growth and good prospects for next year (all the acquisitions will contribute to next years profits) does justify a higher valuation. The yield is 3.6%. The principal concern with this stock is the price of oil, which we expect to remain within a range of US$35-45 per barrel in the medium term and could be a drag on profits if the company is unable to pass on cost increases to consumers.
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