Firstgroup rallies on UBS upgrade

Shares in UK transport operator Firstgroup rallied after UBS raised its stance on the stock to ‘neutral’ from ‘sell’ following recent underperformance versus the market.

The Swiss bank noted that in the three months since July, Firstgroup has underperformed the FTSE 250 index by 12%.

It said this was driven by two factors: the lower oil price and a negative profit mix change.

“While the recent underperformance may make Firstgroup look comparatively more attractive versus peers than it did three months ago, we believe that a discount is justified given that FGP's cash generation should remain below that of peers until 2018-19 and also given the risk that the 2017 targets may be missed, although we currently assume those margin targets are met.”

As such, UBS said it reckons the stock is trading close to fair value.

The bank trimmed its price target on the stock to 108p from 112p primarily as a result of a negative change in the estimated profit mix within the group.

At 1517 BST, Firstgroup shares were up 4.2% at 102.30p.