Stock of the day 02/12/2015 – Stagecoach Group PLC

It hasn’t been a smooth journey for Stagecoach in 2015; can it get back on the right road with its half year results next Wednesday?

From the off things went poorly for the travel company. After opening the year at £3.66 Stagecoach immediately began to tumble, falling to £3.32 following even as the company claimed its then-recently acquired East Coast rail route between London and Scotland would ‘significantly enhance’ its profits in a start of March management statement.

Things began to pick up in the middle of March, however, and towards the end of April Stagecoach was grazing £3.80 for the first time since mid-December 2014. Despite confirming Stagecoach’s further expansion into mainland Europe with its Megabus brand and showing a 9% rise in South West and East Midlands Trains revenue, the company’s end of April update then briefly dragged the stock back to £3.60 as it warned that low fuel prices were negatively affected growth in the US. However, the Tory election win soon sent the stock rocketing by 6.6%, in the process causing Stagecoach to trickle past the £4 mark.


(Source: IT-Finance.com 02/12/2015)

For the rest of May and most of June Stagecoach loitered between £4 and £4.10, only to hit a 2015 peak of £4.21 following its preliminary full year results which saw a 2% jump in pre-tax profit to £180.7 million joined by a 4% increase in revenue to £2.9 billion. Yet these highs couldn’t last long, and after a tepid July and a rough start to August the stock fell below the £4 mark. Things were only exacerbated by the market chaos of the second half of August, the stock plunging all the way to 2015 (and 2 year) nadir of £3.27 at the start of October. The tumultuous trading of that period meant that Stagecoach’s August update, seeing a 0.7% fall in bus passenger numbers (but a 1% rise in regional bus revenue) due to unseasonable weather and a 5.3% fall in US sales countered by a 5.5% increase in its rail division, got lost in the fray.

A mild improvement as October turned into November, seeing the stock tickle £3.80, was then tempered by the company’s most recent trading update, which stated that its net start-up losses for the year ending 30 April 2016 would be, at £15 million, £5 million higher than initially estimated as it expands Megabus into a domestic service in France.

It also showed that its regional bus operations saw a meagre 1% increase in revenue, whilst its US division, continually beleaguered by low oil prices, saw like-for-like revenue fall 5.6%. Things were better in its UK rail divisions; its west coast joint venture with Virgin Rail saw revenue jump 8.7%, whilst its other UK rail services saw sales rise by 5.8%. Yet even the affirmation that Stagecoach remains ‘on course to meet [its] expectations for the year’ failed to get investors on board, leaving it to fall back to a current trading price of £3.62 (IT-Finance.com, 02/12/2015).

Stagecoach Group PLC has a consensus rating of ‘Hold’ with an average target price of £3.82.