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.
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Stagecoach Group
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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.