Stagecoach staying on track in face of 'more challenging' market

In a brief trading update Stagecoach said although it was operating in a "more challenging" environment, it remained on track to meet full year targets.

The FTSE 250 bus and rail group said its expectations for group adjusted earnings per share for the year ending 30 April 2016 "has not significantly changed" since its interim results announcement in early December.

As had been forewarned, like-for-like revenue growth trends at UK regional bus and UK rail have both declined from the first half, with bus sales down to 0.7% for the 40 weeks to 6 February from 1% at the half year, and rail slipping to 4.6% from 6%.

UK London bus revenue growth of +1.3% compares to +1.4% at the interims.

Also as anticipated, second half revenue in North America is benefiting from new contract wins, with LFL growth improving to -4.4% from the -5.5% at the half-year point thanks to contract wins.

Virgin Rail Group has delivered LFL revenue growth of +6.6%.

Broker Shore Capital said based on an initial reading of what was a brief statement, it did not expect to change its overall full year revenue forecasts materially post this statement.

"On the face of it, given the poor weather since the interim results that will have impacted trading at UK Regional Bus and UK Rail, this would appear to be a good performance," wrote analyst Martin Brown.

A big focus in the UK will be the draft publication of the Buses Bill in the next couple of months, he added.

"While the proof will be in the reading, we expect the Bill to contain a strong focus on partnerships, with franchising being left open to those authorities that which to go through the expensive and time consuming process of pursuing franchising, after which they may find their proposals do not meet the right threshold tests and they end up having to go down the partnership anyway.

"Certainly the mood music is increasingly pointing to a relatively small number of regions pursuing franchising over partnerships. In our opinion, this will be remove the uncertainty hanging over Stagecoach and the shares should re-rate."