HSBC upgrades Stagecoach, Go-Ahead; downgrades Firstgroup

HSBC downgraded its stance on FirstGroup on Wednesday, but lifted its ratings on Go-Ahead and Stagecoach as it took a look at UK bus and rail operators.

The bank, which upgraded both Stagecoach and Go-Ahead to ‘buy’ from ‘hold’, said the sector is extremely cheap. "The sector has been here three times before and it’s rebounded," HSBC said.

"It’s true that some verticals (eg UK bus) could take time to see a recovery, but they are being underpinned by government support which we expect to remain until the sector returns to profit.

"In other verticals, (eg US school bus), recovery should come through relatively quickly."

HSBC said that while earnings may not get back to last year’s levels, they don’t need to for the value to be clear. "With all operators generating cash, we do not see risk of business failures," it said.

The bank said buy-rated National Express remains a clear favourite. It said the company’s track record before the pandemic was strong. "While recovery has been delayed, we continue to believe it will come through in time."

As for Go-Ahead and Stagecoach, it said that while some investors may be put off by their domestic focus, they should survive and some sort of recovery should be possible as social distancing measures are eased.

HSBC downgraded FirstGroup to ‘hold’ from ‘buy’ following weak full-year results but said the going concern risks look overdone.