Stagecoach Falls on Floods, Paris, Loses Out in Franchise Awards

  • Deluge in Lake District, Scotland disrupts bus, rail travel
  • FirstGroup retains TransPennine; Deutsche Bahn wins Northern

Stagecoach Group Plc fell the most in four years after cutting its earnings forecast as floods in northern Britain disrupt bus and rail travel and the Paris terror attacks curb demand on international routes.

The Perth, Scotland-based company also failed in a bid to run the TransPennine Express rail franchise, which remains with FirstGroup Plc, while the Northern network was awarded to a unit of Germany’s Deutsche Bahn AG.

Stagecoach stock dropped 17 percent, the steepest intraday decline since Oct. 10, 2011, before trading 14 percent lower at 306 pence as of 10:38 a.m. in London. The shares are down 17 percent this year, valuing the company at 1.76 billion pounds ($2.7 billion).

“We’ve seen a slowdown in some of our inter-city rail and coach revenues,” Chief Executive Officer Martin Griffiths said in a phone interview. “We think some of that will be related to the terrible incidents in Paris, and also just a general slowing of growth in our U.K. bus division.”

West Coast Washout

Virgin Trains West Coast Main Line operations between London and Scotland, in which Stagecoach has a stake, were halted at the weekend after record rainfall in England’s Lake District washed out power supplies. Dozens of roads were impassable and a bus depot in Carlisle, the city worst affected, was flooded.

Stagecoach’s Megabus arm, which has routes to Paris, Brussels and Amsterdam, has seen sales slide following the Nov. 13 deaths in the French capital. The business, designed to rival FirstGroup’s Greyhound buses, is spending 40 million pounds on new vehicles to take the fleet to 140 by the year’s end.

Even in the U.K., bus operations have experienced a softening in demand on routes favored by tourists, such as London to Oxford, Stagecoach said.

Griffiths said that while the effects of both the floods and the post-Paris slump are likely to be temporary, the company is “cautious about the outlook.”

Analysts are cutting Stagecoach’s adjusted earnings-per-share forecast by 5 percent for the 12 months through April 2016, and 4 percent for the following fiscal year, Chief Financial Officer Ross Paterson said, declining to provide a company estimate.

Arriva Victory

In the U.S., where the biggest competitor to Stagecoach’s buses is the private car, the company has removed about 10 percent of its total mileage as low oil prices encourage people to turn away from public transportation. Excess capacity will be retained for redeployment once crude recovers, Griffiths said.

Deutsche Bahn’s Arriva unit was separately awarded a contract to run the Northern rail franchise, which operates regional and commuter trains across northern England, with the deal spanning April 2016 through March 2025. It beat out a bid from Dutch-owned incumbent Abellio and another from Go-Ahead Group Plc teamed with the Keolis arm of French state railway SNCF.

Terms of the deal include the elimination of bus-based Pacer trains by the end of 2019 and the introduction of 281 new carriages, double the number required, the Department for Transport said in a statement Wednesday.

FirstGroup retained the TransPennine franchise, which runs inter-city services across the north and into Scotland, with the contract spanning April 2016 to March 2023. The award will see the introduction of 220 new carriages capable of speeds of 125 miles an hour, and the restoration of direct trains from Liverpool to Glasgow.

FirstGroup was bidding against Keolis, its former partner on the network, which had chosen to team with Go-Ahead, as well as against Stagecoach. Go-Ahead traded down 3.5 percent.

The government will receive 400 million pounds in premiums over the life of the TransPennine franchise, which was previously subsidized, the DfT said, while payments to support the Northern network will be cut by 140 million pounds by the end of the nine-year term.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE