Shares in embattled bus and rail company FirstGroup (FGP) jumped over 6% to 43.5p after saying it expects to deliver a small first-half profit, having reported stronger-than-expected performance in the four months through August.

In an AGM trading update, the company said it’s now expecting to deliver a small adjusted operating profit for the seasonally weaker first half of the financial year, ahead of its expectations earlier this summer, with stronger profit and cash generation driven by better revenue recovery and strong cost control.

‘SITUATION NOT SUSTAINABLE LONG-TERM’

It provides some relief for investors, with the company’s shares down over 60% year-to-date as it struggled with widening losses even before the coronavirus pandemic.

However, AJ Bell investment director Russ Mould pointed out that FirstGroup’s stronger than expected financial performance has been underwritten by state support for the travel industry, with passenger levels only half of pre-pandemic levels. ‘This situation will not be sustainable in the longer term,’ he added.

In the UK, the firm has recently increased operated mileage to almost 90% of pre-pandemic levels, in order to provide more capacity as demand increases, even as social distancing restrictions remain in place.

FirstGroup also reassured shareholders over its financial position, saying its £850 million in undrawn liquidity 'has improved since April', and reiterating confidence in comfortably meeting banking covenants as at 30 September 2020.

The firm’s net debt to EBITDA ratio on the basis relevant for its bank test is expected to be around two times, a lot lower than the 3.75 times or less required by its banks.

POTENTIAL BUYERS FOUND

In addition, the company said it is still focused on the sale its North American businesses and is ‘encouraged by significant interest from potential buyers’, though it said the pandemic has affected the speed of any sale.

‘As we head into the autumn, our priorities are to continue delivering safe, reliable transport services that meet the changing needs of our customers and communities, and to execute the sale of the North American businesses as expediently as possible and in the best interests of all shareholders,’ it added.

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Issue Date: 15 Sep 2020