FirstGroup wins $4 billion London Overground rail contract, shares rise

Contract runs for eight-years with two-year extension option

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Analysts see potential for earnings upgrade from contract

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FirstGroup shares rise more than 5%

Dec 10 (Reuters) - Britain's FirstGroup has been named the preferred operator for London's Overground suburban rail network in a contract worth around 3 billion pounds ($4 billion), the company said on Wednesday, sending its shares up more than 5%.

Subsidiary First Rail London will take over operations from Arriva Rail London in May 2026 for an initial term of eight years, with public body Transport for London (TfL) having the option to extend the contract for two more years.

Panmure Liberum analyst Gerald Khoo said the London Overground would be FirstGroup's largest single TfL contract and marked further progress in the company's efforts to diversify its earnings and customer base.

Launched in 2007, the London Overground links areas outside central London. The network spans 100 miles (161 km) and 113 stations, and serves over four million passengers weekly.

The contract significantly expands FirstGroup's London portfolio, where it already operates buses, trams and the London Cable Car for TfL, as the company grows its rail operations.

FirstGroup will run train services, stations and customer service under the contract, backed by a 30 million pound performance bond and an 80 million pound parent company guarantee.

The company's shares were up 5% to 183.8 pence at 0919 GMT.

The agreement requires the operator to increase services on the Mildmay line, the oldest part of TfL’s rail network, as well as the Windrush line.

RBC Capital Markets analysts said the contract was low-risk since TfL retains all revenue and passenger risk, with a potential for a profit boost for FirstGroup.

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