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Arriva : H1 results
Arriva said an increase in bus and train business in Europe helped offset a £145m drop in half year revenues following the loss of its Northern Rail franchise last year. Pre-tax profits fell 2.1% to £50.3m in the half year to June 2005. Revenues fell to £800m from £854.8m.
The UK bus operations increased operating profits slightly to £30m (1H 2004: £29m) on revenue of £338m (1H 2004: £316.7m). Increased fuel costs of around £3m were offset by cost control and revenue growth. Much of the fuel requirements the bus operations for 2006 have already been contracted resulting in additional costs of about £14m which the company hopes to recover through further cost control and revenue growth.
Operating profits in UK trains declined to £8.4m (1H 2004: £14.6m) on revenue of £116.3m (1H 2004: £262.4m), mainly due to the loss of the Northern Rail franchise. The current rail franchise runs until 2018 and the company says it will continue to bid for new franchises when opportunities arise.
The only really strong performance came from the company’s European operations where operating profits rose by 44% to £21.5m, boosted by the full year impact of acquisitions made last year. Higher fuel costs were partially offset by cost indexation formulae and state approved fare increases which limited the impact to £1.5m.
Growth prospects seem to rest largely in Europe. A number of contract wins in the Netherlands, Sweden and Germany will help boost growth in the short term. The acquisition of a bus operation in Italy and a JV in Portugal is also positive. The key risk factor is fuel costs which are likely to remain high in the medium term.
The share trades at 575p, on a prospective PE (2005 earnings) of 13.7x, at the upper end of the sector range. The yield is 3.5%.
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