Financial Trading Blog
Stock of the day 31/03/2015 – FirstGroup PLC
The train company’s heart-stoppingly large drop in stock price in mid-2013, which saw FirstGroup fall from £2.24 to £0.99 in less than a month after undertaking a £615 million rights issue, hasn’t been fully recovered in the intervening years, with the company starting 2014 at £1.24 before closing out the year at £1.06. FirstGroup has continued to fall since then; despite reaching a high of £1.09 near the end of January the stock hasn’t manage a significant turnaround, and is currently trading at a 2015 low of £0.89.
This misfortune is largely due to the fact that FirstGroup has been giving away train franchises like they are going out of fashion. It lost ScotRail, a franchise it had run from 2004, to Abellio, costing it a potential £6 billion and the transfer of 5000 employees. This was followed by the losing East Coast contract to Virgin Trains; the same Virgin Trains that caused the government to renege on FirstGroup’s West Coast Mainline contract back in 2013 after questioning the bidding process.
Things were looking better for FirstGroup last Monday, as it was announced that it was to keep the Great Western franchise for another 4 years, with the possibility of a one year extension, under the provisos that the company offers more seats whilst modernising the service. The big coup for FirstGroup was the fact that they got this deal for a premium of only £68 million, a far cry from the £800 million in premiums that the company politely turned down back in 2013. This has led many to criticise the Department for Transport for removing any incentive for FirstGroup to perform better; not that FirstGroup cared, as its stock rose by 4% to £0.98 after the news was revealed.
However, these gains couldn’t be sustained as the stock spent the rest of last week, and this week, at a loss, with investors clearly still sceptical about FirstGroup’s current managerial decisions. This mixture of news is reflected in a consensus analyst rating of ‘hold’ and an average price target of £1.30.
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