Interactive Investor

ii view: why FirstGroup just upgraded profit estimates

15th September 2020 15:22

Keith Bowman from interactive investor


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Passenger volumes have improved but the shares remain down over 60% in 2020. 

Trading between 1 April and 31 August

  • Expecting a small adjusted first-half operating profit
  • Encouraged by significant interest from potential buyers of US business

Chief executive Matthew Gregory said:

“Passengers can be confident that public transport is safe and we are encouraged that activity levels are increasing, especially since the start of the new school year on both sides of the Atlantic. We continue to work with our customers, communities and governments to maintain the availability of our transportation services which are so crucial to the recovery of local economies.

“Although the ongoing impact of the pandemic on the Group continues to evolve, clarity is improving over time. We continue to take all necessary action to protect the business and to ensure the Group is in the most robust position possible to deliver on our strategic plans.”

ii round-up:

UK and US transport operator FirstGroup (LSE:FGP) today raised its first-half profit expectation given both a quicker return by passengers under the pandemic and stringent cost control.  

It also flagged significant interest from potential buyers of its North American school bus and public coach services. 

FirstGroup shares rose by more than 5% in UK trading having fallen by more than 60% year-to-date. Shares for rivals National Express (LSE:NEX), Stagecoach (LSE:SGC) and Go-Ahead (LSE:GOG) are all down by similar amounts in 2020. 

Passenger volumes for its UK First Bus business had risen to more than 50% of pre-pandemic levels last week, up from a low of 10% earlier in the year. UK train passenger volumes, and including its Great Western franchise, had increased modestly during the summer, although remain generally at just under a third of pre-pandemic levels.

In North America, revenues for its First Student school bus services were now running at 70% of pre-pandemic levels. Revenues for its Greyhound public coaches had improved to 35% to 40% of normal levels, while its First Transit bus business was now seeing revenues of 80-85%. 

Overall, it now expects to make a small adjusted operating profit during the seasonally weaker first half, better than its previous summer forecast. 

Committed undrawn facilities and cash stood at an improved £850 million as of the end of August while it reiterated its confidence in comfortably meeting near-term banking covenants. Net debt including accounting changes rose by 260% to £3.3 billion in the last financial year – adjusted debt rose by 4% to £1.51 billion.
ii view:

FirstGroup transported 2.1 billion passengers last year and First Bus in the UK transports 1.4 million passengers a day. The company employs around 100,000 staff across its five divisions including First Rail franchises Great Western and South Western railways. 

At the North American business, which is now up for sale, First Student is the largest provider of home-to-school student transportation with a fleet of 43,000 yellow buses. First Transit is a provider of outsourced transit services and Greyhound is a nationwide operator of scheduled intercity coaches. In the year 2019/2020, North America generated just over two-fifths of overall revenue. 

For investors, a planned sale of its North American business should help to reduce debt and increase management focus. Climate change and the environmental benefits of public transport also should not be overlooked. But debt and a virus pandemic create a tough and difficult backdrop for a transport operator, and a difficult time to sell a business. For now, the high degree of outlook uncertainty continues to make this an investment for high-risk investors only.  


  • Environmental credentials given a need to reduce fossil fuel emissions
  • Sale of North American business can reduce debt


  • Highly uncertain outlook given Covid-19
  • Not paying a dividend

The average rating of stock market analysts:


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