Berenberg raises target price on FirstGroup following site visit

Berenberg said FirstGroup was a "market-leading UK bus and rail business", which reported stronger-than-anticipated demand, especially in FirstRail, during its post-close trading update in October. The German bank pointed out that this has led to guidance upgrades for adjusted operating profits and adjusted attributable profit.

However, while Berenberg noted that FirstGroup shares were now up by 43% year-to-date, it continues to see value in the stock given the "continued positive trends" in the bus and rail businesses, consistent upgrades, as well as the "strong balance sheet optionality" and headroom for further investment looking ahead.

Berenberg also highlighted that a recent site visit had further emphasised this view, given the steps the company was taking in terms of electrification, which could also open up further revenue adjacencies.

"Given the strong performance in H1, FirstGroup expects adjusted operating profit and adjusted attributable profit to be £14.0m-20.0m and £7.0m-10.0m higher respectively," it said.

"This profit was driven by continued growth in open access and a higher variable fee from the fee-based contracts as well as good trading in FirstBus. As a result, we upgrade our estimates for FY24 and now expect operating profit of £193.0m and adjusted attributable profit of £97.0m, respectively."

Berenberg maintained its 'buy' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com