ii view: FirstGroup remains on track for 'modest' profit growth

Full-year trading update to 28 March

• Continues to expect modest growth in adjusted earnings per share over the full year
• Expects financial year-end 2026 adjusted net debt of £135-145 million, up from a previous £125-135 million

Chief executive Graham Sutherland said:

"We are on course to deliver on our commitments for FY 2026 and remain focused on the successful execution of our UK focused growth strategy to maintain our positive earnings trajectory."

• Invest with ii: Open an ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

ii round-up:

FirstGroup (LSE:FGP) today maintained hopes for modest growth in adjusted annual earnings in 2026, with the bus and rail operator flagging a February fixing, or further hedging of fuel costs.

Both the bus and rail business have traded in line with management expectations, with additional fossil fuel hedges for both the 2027 and 2028 full years leaving it 88% and 53% covered, respectively. Forecast floating rate electricity consumption is also now hedged 77% and 46% on the same basis.

Shares in the FTSE 250 company, and against the backdrop of developments in the Middle East, swung between gains and losses in UK trading having come into this latest news down by a tenth so far in 2026. That’s better than a near one-fifth fall for National Express owner Mobico Group (LSE:MCG). The FTSE 250 index has fallen 5% year-to-date, with Brent crude oil up by two-thirds since the start of the year. 

FirstGroup transports almost 2 million passengers per day via rail services including Great Western Railways (GWR) and a fleet of around 6,000 regional and London buses. 

The group’s First Bus London unit had helped drive divisional performance over the year, aided by ongoing management actions and selective acquisitions such as that for J&B Coaches of Leeds and Hills Coaches of Wolverhampton. 

Rail performance had been pushed by extended open access, or non-contacted services between Edinburgh and Glasgow. Preparations for the start of its London Overground contract on 3 May are now fully underway.    

Year-end adjusted net debt is now expected at between £135 million and £145 million, up from management’s earlier year estimate of £125 million to £135 million driven by bolt-on acquisitions. 

Full-year results to 28 March are scheduled for 18 June. 

ii view:

Headquartered in Aberdeen, FirstGroup employs around 29,000 people. Around 1,800 locomotives and rail carriages operate across its two remaining government contracted services of Avanti West Coast and Great Western Railways, as well open access services for Hull Trains and Lumo. First Bus serves more than a quarter of the UK population. 

For investors, an expected year-end rise in adjusted net debt feeds into unadjusted net debt including lease liabilities of just under £1 billion in September, a figure similar to FirstGroup’s current stock market value. The model to operate rail services is moving from franchised contracts to open access services, offering a period of transition. Business model changes for bus services are seeing regions outside of London plan to adopt a franchising model, with changes offering similar uncertainties and opportunities, while industrial staff relations for the industry have historically proved difficult.

• How to build a medium-risk ISA portfolio
• Stockwatch: a FTSE 100 stock to play end of Iran war
• Funds that provide shelter in a stock market storm

More favourably, opportunities to add open access rail services and win bus franchises are being targeted. Acquisitions such as that for London bus services continue to generate growth. Cost savings via more efficient operations are being pursued, while the group’s environment push includes investment of around £88 million over its last financial year in electric buses and depot charging points. 

For now, while public transport's green credentials and a forecast dividend yield of around 4% will please some investors, the transport operator's poor share price performance over the past six month suggests many others need more convincing. 

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 of management control

The average rating of stock market analysts:

Buy