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Stagecoach shares recently hit a record high after the company’s joint venture with Virgin Rail was awarded the contract for the much sought after East Coast main line which connects London to Scotland. Stagecoach owns 49% of Virgin Rail Group and the service will start on the 1 March 2015 under the name Virgin Trains East Coast.
The rail company has promised to cut travel time between London and Edinburgh by 13 minutes. The company will have the contract for eight years and it has the option to extend it by one year, however we won’t see the financial benefit of the new contract fora couple of years. The rail operator has been shortlisted for the TransPennine Express rail franchise but the outcome has not been announced.
The first-quarter update revealed a mid-single digit growth in revenue across all divisions except in the London bus service which registered low double digit growth. The London operation could have achieved an even higher rate of growth but the bus services encountered ‘traffic disruption’.
The British bus division is growing at a steady rate and the business in North America is starting to grow at a more moderate rate; in the previous financial year operating profits in the US and Canada grew by 80% which highlights how popular megabus.com is becoming. Even though the firm is performing well at home and abroad I will be interested to see how the New York sightseeing business is faring. The British company is finding it difficult to break the big apple.
Dealers are expecting first half revenue to be £1.57 billion and adjusted net income £81.95 million.
Stagecoach will announce its full-year figures in June 2015. The consensus is for revenue of £3.12 billion and adjusted net income of £146 million, and these forecasts represent a 6.4% increase in revenue and a 2.3% drop in adjusted net profit.
Equity analysts hold a bullish outlook on the stock. There are 16 recommendations attached to the stock, eights are buys, seven are holds and one is a sell, with the average target price of £4.20 which is 3% above the current price. Investment banks are more bullish on Go-Ahead Group. The ratings breakdown is as follows: ten buys, five holds and one sell and the average target price is 7% above the current price.
The stock has been in an upward trend since the 102p low in 2009. A good set of first-half figures could put the stock on track to £5, and any pullbacks are likely to find support at 375p.