FTSE 250 buses and trains operator FirstGroup (FGP) is the biggest faller on the FTSE All-Share index on Thursday. The share price crashed more than 14% lower to 95.15p after plunging into the red last year, sparking its chief executive officer (CEO) to resign.
CEO Tim O’Toole had run the operator of the Great Western and South Western railway franchises for the past seven and a half years. But his position appears to have become untenable after FirstGroup reported pre-tax losses of £326.9m for the year to 31 March 2018.
The group had posted a £152.6m pre-tax profit in the 12 months previously.
Current chairman Wolfhart Hauser has become executive chairman until a successor is found but he has one hell of a job on his hands to, in his own words, ‘mobilise the considerable value inherent in the group.’
GREYHOUND TROUBLES HIT TRADING
A big reason why the stock is getting hammered today is management's over-estimation of cash flows from its US coach service Greyhound. That's led to a whopping £277.3m impairment charge.
It doesn't help that Greyhound's long distance passenger cake is being eaten by cheap air tickets. This means that like-for-like sales fell 0.7% to $912.7m.
UK operations are also facing challenges. For example, management anticipate losses up to £106.3m for its TransPennine Express contract, which has struggled to meet expected passenger sales growth.
Great Western and South Western operations appear to be ticking over to plan.
PROSPECTS DON'T LOOK GREAT
Management are pinning at least some of their recovery hopes on better profit margins from its US and UK bus operations. Yet even if this happens, new rail contracts, struck on stiffer returns terms, are expected to offset most of the benefit.
Which is likely to have many investors wondering why FirstGroup was so quick to rebuff takeover interest last month. In April the company rejected an approach from US private equity firm Apollo.
MISSED OPPORTUNITY?
FirstGroup argued at the time that the approach was opportunistic following a weak spell for the share price.
AJ Bell investment director Russ Mould says Apollo may have ‘dodged a bullet’ with the rebuffed offer and the departure of O’Toole.
‘If the share price is used as an arbiter, then O’Toole’s tenure can hardly be counted as a success with its market value less than a third of what it was when he joined,’ comments Mould.
