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Atlantic View – Has StageCoach (SGC) turned the Corner?

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

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