Headwinds remain for Stagecoach’s bus activities

Margins hit by slowing economy and inflation But Perth-based group’s profits set to rise next week

Perth-based transport giant Stagecoach is set to reveal that UK bus revenues remain under pressure amid economic headwinds and rising inflation when it reports final results next week.

Regional bus revenues were down 2.1 per cent at the halfway stage last December, but the deceleration slowed in the early months of 2017 to minus 1.7 per cent, according to a trading update in March.

“(Profit) margin maintenance, let alone progression, through to 2018 looks challenging for the industry,” said Damian Brewer, transport analyst of RBC Capital Markets, in a note.

Brewer has forecast that Stagecoach’s regional bus profit margin will fall to 11.7 per cent in its current financial year to April 2018, down from a ten-year average of 13.7 per cent before a “slight” recovery.

Stagecoach founder chairman Sir Brian Souter and group chief executive Martin Griffiths are also likely to say next Wednesday that North America trading, where the company runs the megabus.com intercity brand and commuter and transit services, remains “difficult” due to cheaper fuel prices. However, investment bank UBS says growth rates stateside should have shown further improvement, particularly for megabus, where the decline of nearly 8 per cent in the first trading half had narrowed to 5.4 per cent by the March update.

In the UK rail division, the City expects a “mixed picture”, with revenue growth almost stalling at Stagecoach’s South West Trains (SWT) franchise out of London Waterloo to the Surrey commuter belt and the south west of England, but the East Coast mainline operation showing improvement.

On Thursday, Stagecoach was named one of three shortlisted bidders to operate the HS2 high-speed railway.

Among its rivals is Scottish transport operator rival Firstgroup, with the bidders competing for the West Coast Partnership franchise.

That will include services on the existing West Coast route between Glasgow and London from 2019 and initial HS2 trains between London and Birmingham from 2026.

The announcement by the Department for Transport consoled Stagecoach for the blow in March when the UK government switched the group’s flagship SWT operation to a j/v involving Firstgroup and a Chinese transport operator.

RBC Capital Markets predicts underlying earnings for the full year to April 2017 of £339.2m, up from £322m.

mflanagan@scotsman.com