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The SP drop has more to do with market sentiment re Covid rather than contents of the RNS. Revenues have been guaranteed albeit at a reduced level of upto 1.5% which is a good thing, the reality is this was going to happen anyway. FGP then have to work out if they think, in the longer term the feasibility of running these services at these margins.
Statement from this morning "During the term of the ERMAs, the DfT will continue to waive the revenue, cost and contingent capital risk of the train operating companies (TOCs) and will pay them a fixed management fee. There is also the potential for an additional performance-based fee, based on measures including punctuality, passenger satisfaction and financial performance. The overall fee potential is a maximum of 1.5% of the cost base of each franchise prior to the pandemic. The fixed fee and overall fee potential for each TOC is lower under the new ERMAs compared with the Emergency Measures Agreements, and more heavily weighted to performance delivery."
Key statement " The overall fee potential is a maximum of 1.5% of the cost base of each franchise prior to the pandemic." Also read the 'termination agreements' section, which probably will have a much larger impact on FGP's finances vs. than the EMA %'s.
I am not saying your didn't take your figures from the accounts, however the way you presented them was highly misleading. Adjusted operating profit is before any impairments and centralised costs are accounted for. With the size of the impairments for Insurance and other items, then the adjusted operating profit is not a good indicator of the profitability of the unit to the group. The overall group made a stonking loss, even before Covid struck.
Final points for you - you sell a businesses on aggregated historic and/or future projected discounted cashflow including project growth (which the business is doing) not point in time ones, see the growth forecast in the goodwill impairment assessment of the accounts.
Second 90% train capacity x train revenue of £3.1b x 1.5% is £41b operating profit. Also the performance element was additional to the 1.5% I thought?
Also, the board have said that they are getting approx 70% of income from US Student buses, this dipped lower in the 6 months they are reporting before agreements were made.
The figures I am quoting are in the accounts.
I can only conclude you must be short or holding from a very high level and just depressed at the current price.
Thunder let's stop this exchange as you are giving out highly misleading numbers which I don't want anything to do with. Please stop saying the new agreements guarantees revenues at 1.5%. They do nothing of the sort, this is dependent on performance measures.
First student (did!!!) have an adjusted operating margin of 8.2%, or £159m, last year...before the pandemic hit. We have no idea what it is now that they are only collecting 70% of revenues and additional revenues, such as school trips, have all but totally dried up. This is also before an impairment of £141m related to North American insurance claims.
*£68m
PYEUCK - the presentation on the website tells you the operating margin of rail was 2.2%giving operating profit of 68%. That was blended across all franchises. So current arrangement is actually more profitable I would suspect, as SWR was struggling and now yields +1.5%. Hence why the board pushed for the cost plus agreement and now have it.
Thunder, sorry but I don't trust your analysis as it is highly misleading.
You may not be able to make a loss on the agreement but as they don't include the central costs of running FGP, you can definitely make a loss on the overall business. And, as I previously said the government is looking to charge a termination fee for the contracts which could very well make any 'profit' made on these EMA's seem like small fry.
And on the US, just because 70% of revenue is being collected, this doesn't mean that 'revenues' are protected as you previously claimed. In fact, losing 30% of revenue, in a small margin business, is not a pretty place to be.
What is good is that now pretty much all of UK revenues (in the short term at least) are not dependent on ridership. This is good as I suspect it will be a dire winter for passenger numbers. Still totally unsure whether that nasty little material uncertainty over going concern, is still very much a concern.
May as well say it how it is, this share is currently a special situation play on the US division disposal. The fact UK revenue is gov. backed just de risks holding it until the disposal.
The US Student service is highly defensive and has an operating margin of 8.8%. They are taking market share at the moment and have proven that side of the business to be robust in times of risk - same with First Transit. On EBITDA multiple of 5 -10 which is cheap if you equate operating profit excl covid to EBITDA First Student is worth £222m x5 or x10 which if you do the maths is a £2billion pound business. After debt repayments that is a material uplift to current share price and that is just one US division, Greyhound property value is significantly above book value as well so expect more uplift from that...First transit also running profits. This is a heavily misunderstood business.
The agreement is a cost plus agreement, you can't make a loss on those! Also 70% of US bus revenue is being collected, the most profitable part of the business. Train as a whole didn't contribute that much in earning and bus revenue is also underwritten. Trust me, this is an over reaction.
Thunder -
1) What do you mean 'all the revenue across the business seems to be locked in'? The new agreements with the government will see the only revenue FGP gets from the running of the railways be this fee of up to 1.5% of last years costs. Revenue will fall dramatically as rather than FGP recognising the sale of all tickets, the only revenue will now be this fee. And this revenue is not 'locked in' it is dependent on performance measures.
2) In what way are North American revenues locked in. Some may be, particularly in transit and on some school contracts, but there are also many that are not.
3) Why has the stock fallen 10% today. Well I suspect a lot is the market is having a bad day, especially anything to do with leisure and transport as a second lockdown is feared. More specifically to FGP, if other investors are anything like me, these termination fees that the government is negotiating with the rail franchise operators, based on the state of the contracts pre-covid, are not exactly welcome. We all know that SWR and TPE contracts were performing poorly and FGP had already recognised provisions for these.
4) Finally, yes FGP did say it was operating at a small profit. This however was based on the old, and more generous EMA agreements which allowed rail operators to charge a fee of around 2%. These agreements of up to 1.5% (depending on performance, which FGP is hardly guaranteed to meet based on its reputation), are materially less favourable, so whether the company makes a profit based on this who knows. Especially once any termination costs for old franchises have been factored in, it could be another year of stonking losses ahead. Out of this 1.5% fee we do need to pay for our glorious management team to not have their quality of life too badly impacted!
All the revenue across the business seems to be locked in (and a lot is coming from America) and based on last trading update FG is trading with a small profit - so with today's announcement I am not really sure why the market has taken off near 10% of the market value - makes zero sense to me.