UBS upgrades Stagecoach to 'buy' from 'neutral'

UBS upgraded Stagecoach to ‘buy’ from ‘neutral’, pointing to recent weakness in the share price and expected catalysts over the next 12 months.

The bank said that while full-year 2016 was tough, with slowing revenue trends and one-off effects related to adverse weather, full-year 2017 looks more promising.

UBS argued that as fuel hedges start to roll off meaningfully, Stagecoach will see a tailwind in its opex spread out over the coming three years.

In addition, it said losses in the Megabus Europe business should start to narrow as the ramp-up continues.

UBS also said the shortlisting of Stagecoach for the South Western Rail franchise provides a near-term catalyst which could be worth up to 30p a share if won.

Finally, it pointed out that Stagecoach still has the strongest balance sheet in the sector and at the current share price has a dividend yield of 4.3% rising to more than 6% by 2020.

UBS cut its price target on the stock to 295p from 315p.

At 1052 BST, Stagecoach shares were up 2.1% to 263.40p.