Coach and rail operator FirstGroup’s (FGP) warning over ‘continued economic uncertainty in the UK’ has unsettled investors. But the alert should not shock Shares readers; we flagged a mixed performance in the UK back in February. Even so, shares in the travel group have reversed 5.8% to 141.1p, valuing the business at a little less than £1.7bn.
North America appears to be the company's key growth opportunity. In the year to 31 March 2017 its First Student, First Transit and Greyhound US services delivered $372.4m of operating profit, or £289.7m.
That works out at more than 85% of the group's total £339m operating profit stated, adjusted for amortisation, property disposal profits and other restructuring one-off costs.
BATTERED UK BUSINESS
UK rail and bus operations remain under intense pressure. Like for like passenger numbers are either barely growing (rail) or in decline (bus), with FirstGroup lamenting UK high street shoppers that are increasingly choosing to travel in by car not bus.
Industrial action and major rail upgrade works (on the Great Western line) are other headaches.
DIVIDEND RETURN QUESTIONS
Stockbroker Liberum is optimistic, pointing out results that beat its forecasts. Yet it accepts that UK bus division ‘remains challenged.’
Liberum's belief that dividends may be restored at some stage this year, potentially at a 3.3% yield, may look fanciful to some observers.
Canaccord Genuity analyst Gert Zonneveld is more cautious. He believes that reinstating the payout would restrict FirstGroup's ability to use bolt-on acquisitions in North America to drive growth.
