Go-Ahead Group and Stagecoach shares were both rated 'buy' at investment banks HSBC and Nomura who on Wednesday coincidentally offered their updated views on the UK bus and rail transport sector.In separate notes, Nomura upgraded its rating on Go-Ahead to 'buy' from 'neutral 'while HSBC established a 'buy' rating on the stock.Nomura said Go-Ahead benefits from the most attractive market exposure in the sector, with 37% of full year 2016 EBITA from UK Regional Bus, 31% from London Bus and 32% from UK Rail."We regard the 2016 dividend yield of 4.0%, price-to-earnings ratio of 12.6x and strong growth prospects as making the stock an attractive proposition for investors," it added.Meanwhile, HSBC thinks Go-Ahead is less exposed to threats of possible bus re-regulation than some peers and cash returns likely to emerge in time. "We think that recent rail-driven downgrades problems should reverse," added HSBC.Nomura raised its target price on Go-Ahead to 2950p from 2550p while HSBC adjuted its target price a touch lower for the company to 2815p from 2825p.Both banks were also bullish on Stagecoach, with Nomura affirming its 'buy' rating while HSBC upgrades its rating to 'buy' from 'neutral'.Nomura said it views Stagecoach's operations as attractive, with a strong position in London Bus, exceptional UK Regional Bus margin and burgeoning UK Rail returns."There is strong earnings potential from the recent start-up of East Coast operations and we regard Stagecoach's divisional split as offering strong returns, earnings growth and free-cash-flow generation," said Nomura.HSBC meanwhile said Stagecoach's valuation now looks compelling. "[Stagecoach is] the most vulnerable to tighter UK bus regulation, but also the strongest track record of delivering shareholder returns," said HSBC. "Rail business is tightly managed; we expect further franchise wins," it added.Nomura cut its target price by 10p to 430p but HSBC raised its target price to 400p from 395p.Both investment banks downgraded ratings on National Express with Nomura cutting the stock to 'reduce' from 'neutral' while HSBC lowered it to 'hold' from 'overweight'.Nomura, who also reduced its target price on the stock to 260p from 280p, said it has concerns on National Express given US School Bus earnings should account for 32% of 2016 EBITA, with a stated management desire to invest more in this business."We also forecast National Express to generate 36% of EBITA from Spanish Bus. International diversification remains a key strategic initiative for the group, although returns are negligible for the foreseeable future," Nomura said.HSBC meanwhile noted that trading at National Express appears healthy across the group "though we do question management's appetite for more US school bus acquisitions."The bank retained its 300p target price on National Express, noting that it has been positive on the company's outlook or since September for valuation reasons."While we recognise that further contract wins in Germany and the Middle East could continue to excite investors, we think that the recovery may have run its course for now," added HSBC.Lastly, both Nomura and HSBC rate FirstGroup at 'hold' with the former trimming its target price to 120p from 130p on the stock while the latter cut its target price to 110p from 120p on the stock.Nomura regards FirstGroup as having the worst sub-sector exposure, with 70% from the US, of which 37% of group EBITA is from US School Bus, and no exposure to London Bus."We believe FirstGroup's sector exposure and relatively weak balance sheet provide support for a bearish investment case," added Nomura.HSBC meanwhile said FirstGroup's valuation looks reasonable, cash generation remains a medium-term prospect, debts remain high and the good news on turnaround is baked in to the bank's forecasts, which warrants a 'hold' rating.
Firstgroup (FGP)