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by John Woolfitt, Atlantic Capital Markets
Has StageCoach turned the Corner?
Fundamentals & Statement Summary
Britain’s biggest bus and coach operator Stagecoach (LON: SGC) employs around 25,000 people and operates more than 8,300 buses, coaches and trams across operations in England, Scotland and Wales, plus the Supertram light rail network in Sheffield.
In its preliminary results statement today, SGC reported adjusted pre-tax profits to May 2nd 2020 had fallen to GBP90.9m from GBP132.9m previously, on revenues of £1.41bn, down from £1.87bn previously. SGC highlighted an adjusted EPS of 13.5p (2019: 22.1p), while the statutory EPS of 6.4p (2019: 3.8p) reflected non-recurrence of prior year charges relating to the impairment and disposal of the discontinued North America business. On the COVID crisis, SGC said that management actions and the continuing support of government should ensure the group remains EBITDA positive and poised to benefit from any new opportunities.
Significantly, SGC pointed out a substantial warchest of available liquidity, with over £800m of undrawn, committed bank facilities and available cash/deposits. Added to this, regional bus revenue trends were improving pre-COVID, plus SGC has embarked on growth initiatives and diversification to balance the portfolio and open up new markets. As a result, the group has been shortlisted to bid for two Dubai bus contracts, plus one rail and four bus opportunities in Sweden. SGC also are at the forefront of sustainability and green initiatives, and are nearing completion of a new sustainability strategy with a roadmap to a zero carbon business.
CEO Matthew Griffiths said SGC had “achieved a creditable set of financial results in what has been one of the most challenging and sobering periods for citizens, communities and economies across the globe in living memory.”
“Prior to the COVID-19 pandemic, the business was on track to meet its expectations for the full year. We made good progress in delivering on our three key strategic objectives: to maximise our core business potential, manage change through our people and technology, and grow by diversifying, while maintaining our relentless focus on safety and customer service. In responding to the more recent global challenges, we have taken decisive action so that the business remains in as strong a position as possible and well placed to secure the significant long-term opportunities we see for public transport.
Griffiths also pointed to the supportive short-term actions by government and local authority partners, which “have helped protect public transport networks, which are critical to the country. We have also been encouraged by the good momentum created by the positive direction of government bus policy and investment.”
Chart and Technicals
Source: FactSet and Hargreaves Lansdown
As with all stocks during Q1 2020, SGC suffered the inevitable ‘Covid cliff fall’, with group shares falling 2/3rds in value from January to February 2020. A series of ‘false dawns’ since that point resulted in SGC shares briefly regaining the 50-day moving average, currently at 61p, before dropping back again. If the stock can regain the 50-day moving average on an end of week close basis, in a recovering market we would expect SGC shares to regain the benchmark 200-day moving average (purple indicator), currently at 111p, by the end of Q3 2020.
Summary and Atlantic View
Many may take the view that a public transport company offers few if any prospects as an investment. While this may have been true in the past for some of transport operators, our view is that despite the COVID-19 impact on travel, the Government continues to press ahead with initiatives to encourage the general public to reduce carbon emissions by using ‘green’ buses and trains. Stagecoach, and its fleet of green buses and trains are very much at the forefront of this push to zero emissions, and as such we believe the group will continue to receive strong support from Government at National and Local level. With shares now trading at 10 year + lows, new contract shortlists, and with a strong financial position and warchest, Atlantic are backing the shares to ‘turn the corner’ and recover to £1 by the end of Q3 2020 with a ‘Speculative Buy’ rating. An extra incentive is also on offer from this investment ‘vehicle’. Stagecoach also stated in today’s results that “it is our ambition to resume dividend payments in due course.” Atlantic rating: Speculative Buy.
To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here
Stagecoach Group plc SGC updates for the year to the 27th April that it has seen further strong trading in its UK Rail Division, resulting in an increase in expectations for adjusted earnings per share from when interim results were announced in December. The financial performance of UK rail and Virgin rail is ahead of expectations, Regional bus saw a fall of 0.5% in like for like vehicle miles but strangely like-for-like revenue per vehicle mile grew 4.0% and like-for-like revenue per journey also increased 3.6%. which seems to indicate something about fares.
Shield Therapeutics plc STX saw revenue for the year to 31st December grow from £0.6 to £11.9m whilst the annual loss fell from £19.6 million to £19.6 million1.8m. The CEO states that they are now well positioned to deliver further positive news through 2019. A significant highlight for the year was the receipt of £11.0 million upfront from Norgine in respect of a licence agreement.
Gattaca plc GATC Profit before tax and basic earnings per share for the six months to the end of January each rose by 12% and underlying reported EBITDA by 14%. The interim dividend of 3% which was paid last year is, however, not being repeated this year in line with the revised dividend policy. The Board will consider dividends at the year end but this comes with a warning that if they are resumed it would only be at modest levels.
M. Winkworth plc WINK is pleased with its results for 2018, which it achieved in a sales market which it describes as testing. Weaker sales were compensated for by ongoing growth in the rentals business which was very successful and now accounts for half of Group revenues. Profit before tax improved slightly to £1.45 million from : £1.38 million in 2017 and the final dividend is to be increased from 7.25p to 7.45p.
Audioboom Group plc BOOM reports trading ahead of management expectations with quarterly revenue of c.US$4.6 million, up 180% to a record .US$4.6 million, The CEO is delighted with the first quarter start to 2019. and claims that “the potential is now there to deliver significant shareholder value this year”. with key developments including an enhanced global commercial agreements signed with Spotify a strong pipeline of content acqusition and other opportunities, including 11 new shows which were signed during the first quarter.
Kingfisher KGF Despite double digit declines in virtually everything for the half year to the 31st July, Kingfisher tries to put a brave face on things and claim that for the third year in a row, it is on track to deliver strategic milestones. That can only be true if it had some very peculiar milestones in mind such as falls of 30.1% and 29.5% in statutory post and pre tax profits and basic earnings per share down by 27.1%.The half year report is littered with words such as tough, challenges, inefficiencies, mixed and difficult, each one a give away as to how bad things really are.
Constant currency sales fell by 1.1%, adjusted profit before tax was down by 18% and basic earnings per share by 15.4%. The performance in France needs support which does not sound very encouraging and all that is said for the outlook for the rest of the year, is that in its main markets things will continue to be mixed.
Babcock International Group BAB has issued a further update covering the period from the 1st April, confirming that it continues to make significant progress in expanding its international businesses. New offices are being opened in South Korea and Japan. Low single digit underlying organic revenue growth at constant currency is expected for the full year and margins are expected to be stable.
Stagecoach Group SGC provides an update for the financial year to the 27th April which is rather curates eggish. Revenue decreases in London Bus reflected the impact of contracts lost in the previous year but the regions provided like for like growth of 3.2%. Operating costs were higher in the hot weather which sounds like a sort of “wrong type of leaves on the line” sort of excuse. North America failed to impress with a like for like revenue decline of 3.8%.
Science in Sport SIS enjoyed strong growth in the half year to the 30th June with revenue rising by 20% to 9.93m. In the three months to August growth is described as having been very strong. Core business has been profitable at the half year for the first time with £0.3 million EBITDA. International markets also performed strongly with growth of 53% and international revenue now accounts for 34% of the total compared to 27% in the previous year.
Stagecoach Group SGC Does not expect to be profitable until 2019 so it is playing safe and to make sure that shareholders do not get too angry is raising the dividend for the year to 29th April by 4.4% to 11.9p per share. Basic earnings per share for the year fell from 17.1p to 5.5p and profit before tax on a statutory basis slumped from £104.4m to £17.9m. The company is now trying to focus on sustainable growth for the long term.
Dixons Carphone DC claims a good result for the year to 29th April, with a rise of 10% in headline profit before tax. On a statutory basis profit before tax rose from £263m. to £386m and basic earnings per share from 14p to 25.6p. The final dividend is to be increased to 7.75p. per share making a total increase for the year of 15%
Petra Diamonds Ltd. PDL Financial results for the year to 30th June will be below market expectations following a fall in production to 4.4m carats some 6.9%. lower than previous guidance. Despite this Petra is still on track to achieve record revenue and production for the full year as well as expecting to reach its target of 5m carats, a year earlier than planned.
Bunzl plc BNZL expects group revenue for the six months to 30th June will have grown by 7% at constant exchange rates, half of which will come from underlying growth and half from acquisitions. Exchange rate movements will provide a 12% benefit. Bunzl also announces that it has acuired a further three companies in Spain and Canada as part of its strategy for growth
Carillon CLLN A full year trading update shows strong revenue growth and increased operating profits for 2016 and net borrowings down from the half year level. Margins in support services have also been strong. Despite this the new order intake slowed in the second half and current expectations are that the total value of new and probable orders will have fallen.
Numis Group NUM In a year where stock market performance was mixed, Numis produced the highest revenue in the the history of the group with a rise of 15% to £112m.. Profit before tax rose by 25% and earnings per share by 21%. At the year end in September cash balances and net assets both stood at record levels and the total edividend for the year is to be increased by 4%
Stagecoach Group SGC is increasing its interim dividend by 8.6% to 3.8p and says it is pleased with its performance in the midst of political and economic uncertainty. Statutory profit before tax for the half year to 29th October showed a very tiny fall from 90.8m to 89.5m but growth prospects for public transport in the UK and North America look good.
Redhall Group RHL saw its manufacturing order book rise by 109% in the year to the end of September and last years operating loss of £0.7m was turned into an operating profit of £0.9m. With a major reduction in losses from £12.2m to £1.7m the company’s turnaround prospects remain on track. No dividend is recommended.
Sainsbury J. SBRY has had to admit that during its second quarter to the 24th September, it has, because of price deflation, had to sell more to earn less. Despite like for like transaction and volume growth, like for like retail sales were down by 1.1% and total retail sales by 0.4%. As for the future, it expects to continue to outperform it competitors. The amazing thing about todays trading statement is that it appears to be such a struggle for Sainsburys to find meaningful good news that it is reduced to giving space to permanent price reductions in items such as broccoli and onions. Are things really that bad ?
Stagecoach Group SGC has suffered from weakening UK economic conditions over the past four months and regional bus passenger numbers have been weaker than seen in recent years. Like for like revenue per mile fell by 0.5%. In London the number of contracts with Transport for London was reduced. UK rail and Virgin rail fared better but still suffered from a reduced rate of growth. Problems in North America were even more serious with a 3.3% revenue decline over four months which included a startling 10.1% fall in Megabus revenue.
TUI ag. TUI seems to be showing a clean pair of heels to Thomas Cook and is confident of delivering 12 – 13% growth for the year to the end of September with strong sustained performances from the UK and Cruises. UK revenue and bookings both showed a rise of 5%. Winter revenue is up by 11% and bookings by 5% helped by further strength in the UK which shows revenue up by 29% and bookings by 22% compared to actual falls in both the Nordiscs and Germany.
Moss Bros. MOSB traded strongly during the 6 months to 31st July with pre tax profits surging by 30% and the interim dividend increased by 6.1% to 1,91p per share. Like for like sales rose by 4.9% on top of which retail gross margins were up by 3.3%. the company expects further good progress in the second half
Clinigen CLIN is increasing its annual dividends by 18% after what it describes as a transformational year in which adjusted gross profit grew by 90%, EBITDA by 73% and earnings per share by 25%. Clinigen claims that it has now become market leader in the management and supply of both unlicenced and clinical trial medicines.