Stagecoach, U.K. Bus Stocks Advance on State Subsidies Amid Budget Cuts

Stagecoach Group Plc, Go-Ahead Group Plc and FirstGroup Plc surged in London trading after the U.K. government retained fuel subsidies for bus operators amid the country’s deepest-ever budget cuts.

Stagecoach, which operates a fleet of 7,000 buses that carry 2 million people a day, rose 9.4 percent to 205.1 pence, the biggest gain since Sept. 3, 2009, while Go-Ahead advanced 7.7 percent and FirstGroup added 6.4 percent.

Chancellor of the Exchequer George Osborne said today he’ll leave the bulk of fuel subsidies for bus companies intact, reducing the payment by 20 percent from 2012 to save 300 million pounds ($475 million) over three years. The move is part of a plan to slash spending by 81 billion pounds after inflation.

“The cut in the direct subsidy is less than the market had suspected,” said Geoff van Klaveren, a transport analyst at Deutsche Bank AG in London with a “buy” rating on Stagecoach stock. “The concern was that it would be cut completely.”

Following today’s gains, shares of Perth, Scotland-based Stagecoach have added 21 percent this year, boosting its market value to 720 million pounds.

Newcastle upon Tyne, England-based Go-Ahead rose the most since March 4, 2009, and Aberdeen, Scotland-based FirstGroup by the most since May 5 this year. London-based National Express Group Plc closed up 4.7 percent, the biggest gain since May 26.

Local Services

U.K. bus companies last year received 430 million pounds in government payments from the so-called Bus Service Operators Grant, which refunds part of the duty on fuel for running local services, according to the Department for Transportation.

“We are pleased that the government has listened to the industry and kept the cuts to a minimum and we warmly welcome this,” Simon Posner, chief executive officer of the Confederation of Passenger Transport, which represents the bus and rail industries, said in an e-mailed statement.

Bus operators also receive local government support for running services on routes which are not commercially viable but are considered vital to local communities, and for transporting elderly passengers and children at concessionary fares.

The government will also retain incentives for smartcards, low-carbon-emission buses and automatic vehicle location technology, the DfT said in a statement on its website.

“It could have been a lot worse,” said Gert Zonneveld, an analyst at Panmure Gordon in London. “And the cuts aren’t until 2012, so the companies have plenty of time to prepare.”

To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net

To contact the editor responsible for this story: Christopher Jasper at cjasper@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.