ii view: FirstGroup flags new £100 million share buyback

Full year results to 28 March

• Adjusted revenue up 25% £1.72 billion
• Adjusted earnings per share up 5% to 20.3p per share
• Final dividend of 5p per share
• Total dividend for the year up of 11% to 7.2p per share
• A further £100 million share buyback programme
• Net debt and including lease liabilities down 30% to £850 million

Guidance:

• Expects to maintain adjusted EPS for the 2027 year ahead
• Expects free cash generation of around £400 million over the next three years;

Chief executive Graham Sutherland said: “Our strong performance in FY 2026 against significant headwinds has reinforced our track record for delivery and shareholder returns.

“Looking ahead, our focus on operational excellence and our diverse portfolio, robust asset base and cash-generative businesses will enable continued growth and scope for further, material returns.”

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ii round-up:

FirstGroup (LSE:FGP) today highlighted an expectation to generate free cash flow of around £400 million over the next three years, with cash supporting a new £100 million share buyback to be executed over the year ahead.

An accumulative £9 million of cost savings generated over the full year to late March helped push adjusted earnings up 5% year-over-year to 20.3 per share. A final dividend of 5p per share and payable to eligible shareholders on 7 August, takes the total annual payment up 11% to 7.2p per share. The bus and rail operator expects to maintain adjusted earnings per share for the 2027 year ahead.

FirstGroup shares rose 6% in UK trading having come into this these latest results down by close to a tenth so far in 2026. That’s similar to the fall in shares of National Express owner Mobico Group (LSE:MCG). The FTSE 250 index is up just over 3% year-to-date. 

FirstGroup transports almost 1.5 million passengers per day via rail services including Great Western Railways (GWR) and a fleet of around 6,000 regional and London buses.

Revenues for the bus division over the 2027 year ahead are expected to exceed £1.5 billion, up from £1.44 billion in 2026, meaning further progress for adjusted operating profit.

Revenues for the group’s open access rail services are forecast to come in at up to £150 million for the year ahead. That’s potentially up from 2026’s £109.3 million. The UK government has been slowly nationalising many UK contracted services although allowing operators like FirstGroup to run so-called open access or non-contracted services on some lines.

Revenues for the company’s newly won and operated London Overground train services are forecast at around £300 million for the year ahead.

FirstGroup plans to actively participate in regional bus franchising opportunities over the year ahead as well as evaluating rail growth opportunities.

The company’s AGM is likely to be in late July with first-half results following around mid-November.

ii view:

Headquartered in Aberdeen, FirstGroup employs around 30,000 people. Around 320 trains operate across its two remaining government-contracted national services of Avanti West Coast and Great Western Railways. Open access services include Hull Trains and services under the Lumo brand. The group’s buses serve around a fifth of the UK population.

For investors, group net debt, including lease liabilities of £850 million, leave the firm sitting not far from a stock market value of £1 billion. The model to operate rail services is moving from franchised contracts to open access services offering a period of future transition. Business model changes for bus services are seeing regions outside London planning to adopt a franchising model with changes offering similar uncertainties and opportunities, while industrial staff relations for the industry have historically proven difficult.

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On the upside, opportunities to win bus franchises are being pursued with growth in open access rail service revenues forecast to climb. Cost savings via more efficient and restructured operations continue to be made. The acquisition of three coach businesses over this latest financial year has added to growth opportunities, while ongoing investment in electrified buses and coaches has pushed the average vehicle age to 8.8 years from the prior year’s 8.9 years.

On balance, and despite continuing risks, public transport and its green credentials, combined with an estimated future dividend yield of around 4%, will likely keep investors supportive of this highly experienced UK transport operator.

Positives:

• Environmental credentials given a need to reduce fossil fuel emissions
• Seeking potential bolt-on acquisitions

Negatives:

• Subject to political change and risks
• Many factors such as the weather outside management’s control

The average rating of stock market analysts:

Buy