Profits tumble at Stagecoach as lockdown hurts demand

(Sharecast News) - Stagecoach reported a sharp fall in full-year earnings on Wednesday after enduring what it called one of the most challenging periods in living memory.
Revenues from continuing operations for the year to 2 May came in at £1.42bn compared to £1.88bn a year previously, which the transport group attributed to both the impact of Covid-19 and the end of two train franchises, Virgin Trains East Coast in June 2018 and East Midlands Trains in August 2019.

Pre-tax profits tumbled to £90.9m from £132.9m, while earnings per share from total operations were 13.5p compared to 22.1p in 2019.

Stagecoach said: "In common with many businesses, we have been significantly impacted by the Covid-19 pandemic and the necessary measures put in place by government, which have affected travel patterns since March."

Chief executive Martin Griffiths said: "We have achieved a creditable set of financial results in what has been one of the most challenging and sobering periods of citizens, communities and economies across the globe in living memory."

However, the fall in EPS was not as bad as some analysts had predicted and pre-tax profits beat consensus. As a result, the stock rallied in morning trading and by 1100 BST was ahead 7% at 54.12p.

Britain's biggest bus and coach operator said passenger demand was gradually returning as lockdown measures are eased, with commercial revenue now at around 40% of the prior year level.

But it added that it remained difficult to "reliably predict" profit for the year to 1 May 2021.

"In the short term, the actions we have taken and the continuing support of government should ensure we continue to generate positive earnings before interest, tax, depreciation and amortisation, and avoid significant operating losses, and were working to re-build profitability over time," it said.

Stagecoach also said the pandemic would have a "lasting effect" on travel patterns, with increased working from home and shopping shifting online.

Alexander Paterson, analyst at Peel Hunt, said the results had come in towards the top end of the guidance range and ahead of the broker's forecasts.

"The outperformance was due to London Bus, where operating profit was £16.1m compared to our £10.2m.

"Region bus mileage is back to around 80% of prior year levels, but demand is lagging behind at around 40%, with government support expected to continue until at least October 2020 in England and August in Scotland," it said.

The government has provided support to bus operators since March, allowing them to continue services after the lockdown saw passenger numbers slump.

David Madden, market analyst at CMC Markets, said: "The transport company said that passenger numbers are 40% of the level registered last year, but numbers are up 10% from the height of the lockdown. The group predicts that disruption to the transport industry will be long lasting as sections of society shift towards working, shopping and studying from home, so the outlook isn't too hot."