Liberum cuts FirstGroup price target on Transit earnout disappointment

Liberum cut its price target on FirstGroup on Thursday to 165p from 180p as it said the earnout from the sale of First Transit fell "well short" of its "admittedly bullish" assumption.

FirstGroup said on Wednesday that as part of the sale of First Transit to EQT Infrastructure, it is entitled to an estimated earnout consideration of around $85m.

Liberum said this is well below the carrying value of £106m, so will result in a loss on disposal. It is also well below its assumption of £180m within its sum-of-the-parts valuation.

"We had previously envisaged near-term positive catalysts from the crystallisation of value from the residual Greyhound balance sheet and the Transit earnout," Liberum said.

"Both of these have come through, with Greyhound slightly better than expected but Transit much worse than hoped for. The remaining catalysts remain longer-term, and/or less specific."

The broker said attention now shifts to the pandemic recovery in the bus segment, the completion of the transition to National Rail Contracts in Rail, and the allocation of the proceeds from the earnout and the Greyhound balance sheet unwind.

"We continue to see upside, especially if the government’s commitment to the National Bus Strategy is confirmed," it said.

The broker maintained its ‘buy’ recommendation on the shares.