April 3, 2019 / 9:55 AM / 2 months ago

Stagecoach jumps on profit bump from rail businesses

(Reuters) - Shares in Stagecoach rose almost 13 percent on Wednesday after the British transport company bumped up its annual profit forecast, citing a strong performance at its rail businesses.

FILE PHOTO: Travellers walk to a Virgin train at Euston rail station in London August 15, 2012..REUTERS/Neil Hall/File Photo

Stagecoach’s upbeat stance comes almost a year after the company lost a contract to run trains from London to Edinburgh.

The shrinking size of its rail business, largely due to the British government taking over running the East Coast rail route in May last year, had also prompted the transport company to cut its dividend.

Stagecoach reiterated in December a forecast for profit to come in at around 18.3 pence per share in the year to April.

However, it said on Wednesday that further strong trading and good progress in its UK rail division had prompted it to lift its expectations for adjusted earnings per share.

Before the announcement, analysts expected EPS to come in at 19.8 pence, according to Refinitiv data.

Shares in the company, which rose as much as 12.8 percent in early trading, were up 9.5 percent at 169.5 pence by 0728 GMT, taking them to the top of London’s midcap index.

Stagecoach said on Wednesday that comparable revenue at its UK rail business excluding the Virgin Rail East Coast rail route rose 1.4 percent in the forty-four weeks to March 2, compared to 0.4 percent in the first half of the year.

It said the financial performance of its rail businesses was ahead of its expectations, with continued good underlying revenue trends.

Comparable revenue at Virgin Rail Group, in which the company has a 49 percent minority stake, rose 6.7 percent in the period.

SOLVING PROBLEMS

Stagecoach said it had made progress in its business after wrapping up issues connected to its expired South West Trains franchise, and planned to recognise additional profit in the current financial year.

RBC raised its fiscal 2019 earnings per share forecast for the company by 4.7 percent, citing UK rail upgrades and stable regional bus profit.

“We view Stagecoach shares as having had one of the strongest historical earnings delivery track records of the bus/ rail segment peer group,” RBC analysts said. “(However, it was) blown off course by East Coast rail combined with (investor viewed) difficult UK politics.”

“With East Coast exited in 2018, the company is now (we think) regaining its track record with a series of EPS upgrades,” the analysts said.

Comparable revenue at Stagecoach’s regional bus division rose 3.4 percent, it said, while revenue from its London bus segment rose 1.3 percent despite Britons relying less on buses as they shop more online and change their working patterns.

($1 = 0.7599 pounds)

Reporting by Justin George Varghese in Bengaluru; Editing by Bernard Orr, Arun Koyyur and Jan Harvey

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