Citi sees near-term upside for FirstGroup despite rail renationalisation plans

FirstGroup's stock has traded broadly sideways over the past month on the back of worries about Labour's expected victory in the upcoming general election, after the party in April unveiled plans to renationalise Britain's railways "within five years" should they win.

FirstGroup runs three major UK train operating companies, Avanti West Coast, Great Western Railway (GWR), South Western Railway (SWR), as well as two open-access passenger rail services, Hull Trains and Lumo.

Proposals put forward by Labour suggest that passenger services would be taken back under government ownership as current contracts expire, managed under a new public body, Great British Railways. Open-access services by independent operators like Hull Trains and Lumo could continue to operate privately.

"We expect the current rail franchise to run its core term and is likely to be brought in-house by the government post the end of the contract," Citi said in a research note.

"In fact, we see potential for extension of contracts expiring in the next 12 months by one to two years. This is likely to be upside for FirstGroup given GWR and SWR are expiring in the next 12 months."

FirstGroup's shares were up 2.1% at 174.63p by 1150 BST.