Investec upgrades Stagecoach to 'reduce'

Investec upgraded Stagecoach to ‘reduce’ from ‘sell’ saying that while the outlook for the company remains negative in many areas, much of this is already priced into the shares.

The brokerage said it has adjusted its sum-of-the-parts valuation, removing Megabus Europe losses from its embedded value calculation and instead choosing to DCF the Megabus Europe business.

“Although our SoTP valuation rises to 276p, we choose to apply a 10% discount to reflect the ongoing downgrade cycle and significant rail re-bid risk,” said Investec, as it kept its 250p target price on the stock.

The brokerage said Stagecoach’s latest trading update was subdued again, mostly on the back of weakness in UK Rail.

It said implied trading in the eight-week period since the previous update was sharply softer, mainly due to the timing of Easter.

“Excluding this effect, Regional and London Bus trends are similar to those reported at the 40-week stage, though UK Rail has seen an underlying deterioration, due to weaker GDP growth and consumer confidence, as well as terrorism.”

At 1055 BST, Stagecoach shares were down 0.8% to 256.20p.