Stagecoach shrugs off downturn

By Victoria Bryan

LONDON (Reuters) - Train and bus operator Stagecoach Group posted a 12.6 percent increase in full-year profit thanks to a strong performance at its bus division and said current trading was in line, boosting its shares.

The group, which operates some 7,000 buses across the UK, posted on Wednesday pretax profit for the year to April 30 of 196.4 million pounds, just ahead of the consensus forecast of 195 million pounds according to a survey from Reuters Estimates, and earnings per share of 22.9 pence.

Revenue and passenger volume growth slowed in the second half and Finance Director Martin Griffiths told reporters Stagecoach was not going to see much growth in its UK rail division over the next year as the recession hurts demand for both commuter and leisure travel.

Its shares gained over 8 percent, however, as the Scotland-based group said trading was in line, echoing comments last week from rival Go-Ahead Group.

"I'm not unhappy with what's in the market for this year," Griffiths said. "The market expectation for current year earnings is about 15 pence, down from what we've reported this morning, which reflects our comments on UK Rail."

Panmure Gordon said the results came in slightly ahead of its view and highlighted a strong performance from the bus division.

Astaire Securities analyst Douglas McNeil told Reuters the statement contained several positives.

"Cash generation was good, the dividend was raised and results were in line."

Stagecoach increased revenue 19.3 percent to 2.1 billion pounds and raised the dividend for the year to 6 pence from 5.4 pence.

DISPUTE

The co-owner of Virgin Trains also reiterated it expected a significant operating loss for the UK rail division in the year to April 30 2011 unless it resolves a dispute with the government over revenue support for London commuter franchise South Western Trains.

Stagecoach took on the franchise at a time when passenger numbers were soaring, but demand is now falling and Stagecoach wants the government to provide revenue support from April 2010, while the government says this should start in February 2011.

Finance Director Martin Griffiths told reporters Stagecoach could be 20 percent off the target revenue in the franchise, leaving a shortfall of between 70 million and 100 million pounds to make up.

Stagecoach said in a statement it was confident of a favourable outcome in the dispute, which has now been referred for arbitration. Griffiths said it could take 12-15 months to resolve. Griffiths also said the group had no further concrete cost-cutting plans on top of the 50 million pounds of savings its has already carried out.

"Like every business we continue to look at how efficient we are. We've nothing planned at this point in time but we'll continue to keep the situation under review."

(Editing by Rupert Winchester and Hans Peters)