ii view: FirstGroup shares driven lower by mixed results

First-half results to 27 September

• Adjusted revenue up 30% £834 million
• Adjusted earnings per share up 16% to 9.9p
• Interim dividend up 29% to 2.2p per share
• Adjusted net debt of £208 million, up from £87 million in late March
• Reported net debt of £992 million, up from £975 million in late March 

Guidance:

• Now expects modest growth in adjusted earnings per share over the full year to March 2026, up from a previous flat forecast
• Now expects to at least maintain adjusted earnings per share for FY2027 compared to FY2026
• Now expects year-end net debt of between £125 million and £135 million

 Chief executive Graham Sutherland said:

"We have delivered a robust performance in H1 2026, made further progress in growing and diversifying the business and maintained our positive earnings trajectory. In the second half, we will benefit from the actions we have taken to restructure the business as well as the contribution of our recent acquisitions and expect modest growth in our adjusted earnings per share for the full year.

"Our focus remains on the delivery of our commitments, including the successful execution of our UK focused growth strategy. Underpinned by our strong balance sheet and disciplined capital allocation policy, we are well placed to deliver further benefits for all our stakeholders."

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ii round-up:

FirstGroup (LSE:FGP) today raised its expectations for annual profits but announced no new share buyback programme as it directs funds towards paying down debt following a programme of accelerated investment in bus electrification.

Adjusted earnings for the first half to late September rose 16% to 9.9p per share, with the bus and train operator now forecasting modest growth in adjusted earnings over the full year versus a prior flat estimate. Adjusted net debt of £208 million, up from £87 million in late March, is now expected to fall to £125-135 million come the year end in late March. 

Against a backdrop of weaker markets, shares in the FTSE 250 transport operator fell 10% having come into this latest news up by a quarter so far in 2025. The FTSE 250 index is up 4% year-to-date, while National Express coaches owner Mobico Group (LSE:MCG) has plummeted 70% over that time. 

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. 

Bus profits rose 4% to £42.7 million, aided by pricing actions and ongoing efficiencies, although underlying passenger volumes were 4% lower than a year ago.

Rail profit of £66.6 million was less than £67.9 million a year ago, hindered by the expiry of the South Western Railway National Rail government contract in May 2025. Journeys on its Open Access services, and away from set period government contracts, rose 2% year-over-year to 1.43 million and cover Hull Trains and Lumo services between London, Newcastle and Scotland. 

An interim dividend of 2.2p per share, payable to eligible shareholders on 30 December, is up from last year’s 1.7p per share. 

A full-year trading update is likely to be announced mid-April. 

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 as open access services for Hull Trains and Lumo. First Bus serves more than a quarter of the UK population via a fleet of around 6,000 buses and coaches. 

For investors, 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 planning to adopt a franchising model, with changes offering similar uncertainties and opportunities. Costs due to increased employer national insurance have risen. Industrial staff relations for the industry have historically proved difficult, while net debt of just under £1 billion including lease liabilities compares to a stock market value of a similar value. 

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On the upside, 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 company has invested around £88 million over the last financial year in electric buses and depot charging points. 

On balance, and despite ongoing risks, public transport and its green credentials combined with a forecast dividend yield of around 3.4% are likely to leave investors hopeful about the long term for 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 of management control

The average rating of stock market analysts:

Buy