Stagecoach holds EPS forecasts as bus revenues fall, trains rise

Bus services in London took a big hit from the recent snow storms, Stagecoach said, with revenues down 4.3% in the 44 weeks to March 3. Regional bus revenue fell 0.1% on a like-for-like basis, also impacted by the weather known as 'the beast from the East'.

“The reported like-for-like revenue growth has been suppressed in recent weeks by the widespread snowstorms throughout the UK,” Stagecoach said.

“During the most recent four-week period, our like-for-like revenue declined by 2.5% from the equivalent prior year period, illustrating the scale of the impact of these extreme weather conditions. Excluding the most recent four-week period, like-for-like revenue growth for the 40 weeks ended 3 February 2018 was 0.1%.”

Like-for-like revenue at UK rail operations, excluding South West Trains (SWT), was up 3.2%. The Virgin Trains joint venture grew by 2.8%, the company said.

In North America revenues were down 0.6% with trends lower than growth seen in the first half, reflecting the timing of contract work during the year and more severe weather than forecasts anticipated over the winter months, it added.

The fall in US revenue included a 4.6% decline for megabus.com North America, reflecting previously implemented mileage changes with revenue per mile for the period up 1.1%.

Stagecoach said discussions were continuing with the Department for Transport regarding new contractual terms for the Virgin Trains East Coast business, and it had submitted a bid for the new South Eastern franchise.

“We are progressing work on our shortlisted bid for the next competitively tendered East Midlands franchise and on our shortlisted bid with SNCF and Virgin for the West Coast Partnership franchise,” it said

“Revenue growth across our existing rail operations has been broadly consistent with the trends seen in the first half of the year.”

“Our expectation of the Group's adjusted earnings per share for the year ending 28 April 2018 has not changed from when we announced our interim results in December 2017. “

Broker Canaccord Genuity manintaine a 'buy' rating on the stock, saying it believed the company would maintain its dividends in the coming years "even in the absence of any meaningful rail contributions", given that dividend would be fully covered by bus operations.

"The dividend yield of nearly 9% continues to look highly attractive," the broker said in a note to clients.

"The East Midlands franchise performed well with revenue growth of 3.2% in 44 weeks to 3 March and we expect this franchise to deliver a good level of profitability. SWT expired in August 2017 which is why full year rail earnings should be down for the full year."