FirstGroup Tumbles on U.K. Bus Business Outlook: London Mover

FirstGroup Plc dropped the most in more than three years in London after the U.K. bus and rail operator said today that it was facing “challenging trading conditions” in its bus business.

FirstGroup fell 14 percent to 247.4 pence, its steepest decline since January 2009, cutting its market value to 1.19 billion pounds ($1.89 billion). Earlier, the stock fell as much as 19 percent.

“Economic difficulties are making it hard to push through fare increases,” Gert Zonneveld, an analyst at Panmure Gordon in London, said by telephone. “I’m not aware of any other bus companies in a similar situation where they are talking down margins to the same extent.”

The operating profit at FirstGroup’s U.K. bus business will be about 8 percent of sales in the financial year ending in 2013, the company said in a statement today. That compares with analysts’ forecasts of about 12 percent, Bank of America Corp. said in a note today.

FirstGroup said that growth is slowing in the north of the U.K. where its bus business generates about 60 percent of its bus-passenger revenue. Slower revenue growth at the unit is also being exacerbated by a reduction in government subsidies and higher fuel costs, the Aberdeen, Scotland-based company said.

“We do not expect revenue growth and cost efficiencies to be sufficient to offset the impact of reduced government subsidies and funding to the industry and increased fuel costs,” the company said.

Bidding Shortlist

FirstGroup has been shortlisted by the U.K. government to bid for three rail franchises, it said in a separate statement today.

The company will compete with Deutsche Bahn AG’s Arriva unit, National Express Group Plc and Stagecoach Group Plc to run the Great Western franchise, which it currently operates. The line runs from London’s Paddington station to Oxford, southwest England and Wales.

FirstGroup is also shortlisted for the Thameslink and Essex Thameside commuter franchises, where competing bidders include Hong Kong’s MTR Corp.

Other U.K. operators also retreated today. Stagecoach fell 3.8 percent to 253 pence, while National Express declined 5.1 percent to 239.2 pence and Go-Ahead Group Plc dropped 5.5 percent to 1,230 pence.

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