Stock of the day 09/07/2015 – FirstGroup PLC

Can FirstGroup continue on its road to recovery with its Q1 2015 trading update on Tuesday?

After a disappointing few years, full of lost contracts, rights issues and failed bids, things didn’t look like they were going to change in the first few months of 2015. After opening the year at £1.05, the stock gradually slipped to a 20 month low of £0.89 by the end of March, despite the company’s Great Western rail deal being extended to 2019 earlier in the month.

However, its April trading update managed to impress investors, causing a 6.75% surge on the markets to £0.97. The reassurance that the company was putting its worst year behind it no doubt helped ease the investor fears that had slowly been eating away at the stock’s price. Cheap fuel had hit its US Greyhound buses service as customers opted to drive instead, but the company confirmed it was on track to meet its full year targets despite a 1.1% fall in like-for-like dollar revenues. Its UK business fared better, with its train division seeing a 6.6% increase in demand whilst its buses saw a similar, if less robust, 2.2% jump.


(Source: IT-Finance.com 09/07/2015)

This solid update, largely valued for the lack of nasty surprises than any explicitly great news, helped push FirstGroup higher across the entirety of April, until UK election jitters began to sap away some of its momentum. However, a near 6% boost following the Tory victory put the company back on track, and by June 9th the stock was trading at £1.20, its highest price since the previous November.

Its full year results brought with it more good news, and on June 10th investors sent the stock a further 6% higher to £1.27, its best price since September. The headline figure was a 13.3% increase in operating profits to £303.6 million, alongside a more than robust 80% jump in statutory pre-tax profits to £105.8 million. These numbers helped compensate for a near 10% drop in group revenues, which the company blamed on ‘rail franchise changes, non-recurrence of revenues from UK bus operations sold or closed in the prior year and foreign exchange translation’, meaning the figure rose to a 4.4% increase when these factors were removed.

The stock eventually hit a peak of £1.30 towards the end of June, but a few downgradings, and a FTSE250 warning over the size of pension scheme deficits of which FirstGroup tops the table, caused a tumble across the start of July, meaning the company is at a current trading price of £1.16 (IT-Finance.com, 09/07/2015).

Ahead of its trading update, FirstGroup has a consensus rating of ‘hold’ with an average target price of £1.27.

Thursday’s stock news:

It was a, um, super day for SuperGroup which jumped by over 5% this Thursday after posting its full year results. A 2% increase in underlying profits to £63.2 million alongside a 4.8% leap in like-for-like sales were complimented by an ambitious 13% increase in total retail space. There were also signs of this success continuing into 2015, with the company showing 20.3% growth in like-for-like sales for the first 10 weeks of its current fiscal year. However, perhaps the best news for investors was the announcement of a 10-year deal with Chinese retailer Trendy International Group, which allows the owner of SuperDry to finally extend its reach into the potentially lucrative Asian market.

There wasn’t as good news for a more classic British retailer, with Debenhams falling by 3% to a 2 and a half month low of £0.85 following a downgrading by UBS. Analysts took the company from ‘buy’ to ‘neutral’, stating that ‘we see little scope for further re-rating in the absence of earnings upgrades or more evidence of delivering the strategic plan.