Train and bus operator Stagecoach (SGC) is pondering selling its struggling North American operations, including its ownership of budget coach operator Megabus.

Intense competition and rising fuel costs are one of the many headwinds affecting performance as operating profit in North America has slumped 23.2% to $21.2m in the six months to 27 October.

A national shortage of bus drivers has not helped matters with staff costs continuing to rise yet sales have declined, falling 3% to $323.9m.

GOODWILL IMPAIRMENT OF £85.4M

The setbacks have forced Stagecoach to write down the value of its North American operations by £85.4m, painting a less healthy picture for its long-term outlook and pushing the firm into a loss of $22.6m.

AJ Bell investment director Russ Mould argues rising oil prices could have been positive for the company by encouraging people onto public transport instead of driving.

The recent plummet in oil prices effectively removes this potential tailwind.

Investors appear to have given tacit approval to a potential sale of the embattled operations with shares in Stagecoach accelerating 8.5% to 166.9p.

PROFITS BEAT EXPECTATIONS IN UK RAIL

Stagecoach has put contractual matters to bed thanks to negotiations with the Department of Transport after returning the South West Trains franchise, helping operating profit beat expectations.

This is also expected to have a positive knock-on effect for annual adjusted earnings per share, which is now forecast to be higher than analysts’ consensus of 18.5p.

Following the embarrassing loss of the South West Trains and East Coast franchises over the last year, overall sales at Stagecoach have fallen from £1.79bn to £1.2bn.

Losing the South West Trains franchise, which contributed strongly to profitability, was particularly onerous with operating profits declining from £114.8m to £103.4m.

‘In the absence of new rail franchise wins, group earnings are likely to decline in the coming years,’ warns Canaccord Genuity analyst Gert Zonneveld.

In the UK bus division, trading was a mixed bag as operations outside London enjoyed a robust performance compared to the city, where people choosing to cycle instead of getting a bus.


Issue Date: 05 Dec 2018