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Stagecoach: H1 results
Transport company Stagecoach reported flat earnings for the half year to October 2005 due to higher fuel costs.
Operating profits (before amortisations and exceptional items) rose to £82.7m from £80.7m the previous year. Reported pre-tax profits were £54.9m, down from £59.3m.
Growth in passenger numbers pushed revenue from bus operations by 8.5% to £381.1m. Operating profits in buses were marginally ahead at £41.1m compared to £40.5m last year. The newly acquired Merseyside bus operations reported an operating loss of £0.8m, in line with expectations. Growth in this business, which earns half the company’s operating profits is set to come from inter city coach operations. The company has formed a joint venture with ComfortDelGro to operate inter-city coach services in Scotland and has also started Megabus.com which offers low-cost inter-city travel between major locations in the UK.
Revenue from UK rail operations rose 4.6% to £245.6m and operating profits increased to £24.4m (2004: £22.5m). UK rail earns a little over a quarter of the company’s operating profits and has consistently performed well, partly due to the expansion of the franchise. Passenger numbers fell following the terrorist attacks in London but are now recovering. Bids for two new rail franchises and the renewal of the key South West Trains franchise have been submitted. The company seems confident of winning the majority of the bids.
North American operations fared well but a weaker dollar eroded some of the reported gains. Revenue for the half year was £130.8m (2004: £123.6m) while operating profits rose to £15.7m (2004: £14.6m). Increased competition saw a small decline in operating profits in New Zealand (£3.5m against £3.9m last year).
Growth is dependent largely on expansion in the franchise. While there is a good chance of the company renewing its South West Trains franchise, this is by no means certain. Better service levels have resulted in steady organic passenger growth. The key risk is higher energy costs.
The share trades at 118p, on a prospective PE (2006 earnings) of 12.9x at the upper end of the sector range with a yield of 3.3%.
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