Investec retains 'buy' on FirstGroup after first half trading update

Investec has retained its ‘buy’ rating and target price of 125p on FirstGroup after the transport operator said overall trading is in line with management’s expectations.

In a trading update for the six months to the end of September, FirstGroup said its transformation plans continue to progress, despite a more challenging trading environment in some of the group’s markets.

The UK Rail business delivered further strong passenger volume growth, underpinning expected like-for-like passenger revenue growth of approximately 7%. Overall financial performance was toward the top of its range of expectations.

For its UK Bus division, the group’s transformation plan continued to deliver growth in commercial passenger revenues of more than 2% in the first half. However, this was partially offset by the ongoing weakness in concessionary revenues being seen across the industry. Overall like-for-like revenue growth for the division is expected to be 1.3% in the first half, it said.

“On the positive side, five bus depots have been cut which should mean bus margins are stronger sooner and rail revenues were better than we anticipated, boosted by passengers travelling West to visit Dismaland,” Investec analysts said.

“On the negative side, concessionary bus revenues were slightly worse than we expected and in North America, Greyhound and Transit have deteriorated.”

However, Investec changed its forecast for full-year 2016 operating profit to fall 0.2%, as strong retail offsets weaker Greyhound and First Transit.

Shares fell 0.76% at 1654 BST, snapping earlier gains on Friday.