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Stagecoach share price: will annual results show the turnaround is on track?

The Stagecoach share price has been on a bumpy ride over the past few months, as the transport group, which operates buses, train, trams and coaches, gears up to release its full-year results tomorrow.

Stagecoach share price boost after profit revision

Stagecoach’s share price climbed as high as 174p before closing at 160p on 3 April, as the FTSE 250-listed company revised its profit forecast higher, citing a strong performance from its rail division. Having forecast a profit at close to 18.3p per share in December, analysts then forecast a rise in adjusted earnings per share to around 19.8p in April.

Its April updates also revealed that after exiting the East Coast franchise in 2018, the rest of its rail division saw a rise of 1.4% in the 44 weeks to March. Revenue from its 49% stake in Sir Richard Branson’s Virgin Trains rose by 6.7%, while its buses division also showed an improvement of 3.4%.

Since then the shares have fallen away however, as the company becomes embroiled in legal action against the UK government. The share price dropped below 115p in late April, but Stagecoach is currently trading at 127p.

Stagecoach loses rail franchises

Stagecoach lost the London-to-Edinburgh East Coast franchise, which it had run since 2015 under the brand name Virgin Trains East Coast (VTREC), in June last year after the UK government renationalised it due to weak performance and escalating losses. The agreement was supposed to last through to 2023, but Secretary of State for Transport Chris Grayling terminated the contract, telling MPs that the franchise would be publicly run by the government-owned London & North Eastern Railway (LNER) for a short, but as yet unknown, period of time.

In a further blow to its rail business, the Department for Transport (DfT) barred Stagecoach from bidding for three further rail franchises – the West Coast, East Midlands and South Eastern franchises respectively – because it doesn’t meet pensions rules. The Pensions Regulator has stated that the UK’s rail industry requires between £5m and £6m to stem the pension shortfall. The UK government’s move prompted Sir Richard to claim that Virgin Trains “could be gone from the UK”.

In May, West Coast Trains Partnership Ltd, comprised Stagecoach, France’s SNCF and Virgin Trains, announced that it was taking the government to court after being banned from bidding for the West Coast partnership franchise, which is due for renewal in 2020. Stagecoach has also launched legal proceedings in connection with the East Coast franchise.

Stagecoach was bidding jointly for the West Coast line with Virgin and SNCF, while it was planning to team up with Alstom for the South Eastern franchise. It was bidding on its own for the East Midlands franchise, which has now been awarded to Abellio.

What next for Stagecoach shares?

With the share price now hovering above multi-year lows, the question that has to be asked is, can Stagecoach’s share price actually fall any lower? Stagecoach is scheduled to release its annual results at 7am on Wednesday 26 June.

Update: Read our analysis on the annual results and the impact on Stagecoach's share price in early trading.


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