Stagecoach to lose hold of UK's South West train franchise
Stagecoach failed to extend the contract to run the South West Trains franchise beyond February 2017, despite management's confidence about being able to do so until at least April 2019.
FTSE 250
19,355.81
15:35 19/04/24
FTSE 350
4,331.21
15:35 19/04/24
FTSE All-Share
4,286.88
15:35 19/04/24
Stagecoach Group
104.70p
16:34 27/06/22
Travel & Leisure
7,507.23
15:35 19/04/24
The Department for Transport ended the long negotiation process with the FTSE 250 company's subsidiary, South Western Trains, over a potential direct award of a new rail franchise and instead will put the franchise out to tender.
In the meantime, the DfT is expected to extend the franchise to no later than August 2017, with Stagecoach saying it does not currently expect South West Trains to earn a significant profit during any extension period.
The company's management had been very confident of winning the 2019 award, arguing that the general election was holding the government back from confirming the decision earlier this year.
Although Stagecoach has the recently won East Coast franchise coming on stream to offset the impact of the South West loss, analysts said this was still disappointing news.
However, broker Brewin Dolphin said: "The market tends to price in future rail franchises on a probability adjusted basis. Given that the two year extension was all but guaranteed, this morning’s share price reaction is completely understandable.
"So far, things do not appear to be going to plan with the rail franchise renewals or the US coach business," wrote Rob Scott Moncrieff. "UK bus remains by far the most important contributor to the group and this has been behind the rerating of late."
He noted that although representing more than 40% of group revenues, the low margin nature of the rail business means that total rail only makes up 14.1% of the group operating profit.