Investors wait nervously for 2 April's trading update from bus and train operator FirstGroup (FGP) due to its poor track record. Yet Investec is convinced this is a solid turnaround story and repeats its 'buy' rating, albeit warning investors to expect 'hiccups' such as earnings volatility and execution risks along the way.

The group's third quarter interim management statement (17 January) revealed that the group was on track to meet full-year 2014 expectations even if there were still some red flags being waved at First Student which continues to face challenging market conditions as it drives through a cost-savings programme.

The transport group remains confident that First Student will deliver double-digit margins and sustainable returns over the medium term. So while Investec remains relatively confident that any potential shortfalls in that division are likely to be made up elsewhere, such in the Rail segment, numbers at the group as a whole could still be adjusted downwards as a result of factors such as currency movement or the atrocious weather on both sides of the pond in the first quarter.

When last we wrote about FirstGroup on 16 January, the public transport operator, Britain?s second-largest operator of local bus services by fleet size, had been under pressure from activist investor Thomas Sandell who wants to see the FTSE 250 firm spin off and sell its US assets to bolster the balance sheet and invest further in the UK business.

Sandell Asset Management, which owns 3.1% of FirstGroup, continues to challenge the company for its track record of underperformance, arguing the £1.7 billion cap has struggled since the acquisition of Laidlaw (in February 2007), with the company?s shares returning -2.5% over the past five years.

Whether or not the 2 April update will assuage the concerns of FirstGroup's vocal activist investor remains to be seen but Investec analyst John Lawson sees something of a happy ending in the FirstGroup turnaround story. He puts this down to the fact that the public transport specialist has a robust plan to address underperforming areas of the business.

'If management (supported by changes in recent months) can show solid progress, putting aside weather and other macro factors, the stock should perform. A big 'what if', but we believe it can.' Investec's sum of the parts/cashflow-based target price is 160p. The shares presently trade at 139.9p.

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Issue Date: 21 Mar 2014