Rising sales at Stagecoach are being powered by the transport operator’s trains while its buses lag behind, results are expected to show this week.
The FTSE 250 company is set to post a 6pc rise in revenues to £3.11bn when it reveals its yearly results on Wednesday, with rail services making up close to half of all revenue, and the divide is expected to get even wider when the firm starts to run the East Coast railway.
Pre-tax profits are set to total £182.5m, up less than £2m on the year before. Stagecoach’s new eight-year contract to run the East Coast railway with Virgin is expected to generate “significant operating profits” in the next financial year, even with fare caps quietly agreed on certain routes last week to ward off a full competition probe.
Stagecoach also runs the East Midlands rail route, and numerous Scottish bus services that overlap with parts of the East Coast, but the Competition and Markets Authority has said the firm’s fare pledges are enough to remedy the risk to competition.
The company hopes to add a string of new routes in the next few years. Just a third of all franchise competitions have completed following the controversial decision to halt the contest to operate the West Coast line until 2017.
Prizes still up for grabs include the trans-Pennine line, to be awarded this year. Stagecoach is also shortlisted for the East Anglia route.
Although half of all fares are regulated by the Government, meaning inflation-linked price rises, a boom in passenger numbers sent revenues across the rail network up 7.3pc to £8.9bn in the last financial year.
Stagecoach will post an operating profit of £23m for its railway business, according to Shore Capital. This is down 33pc on a year ago, but will surge to £48m next year.
The soaring demand for train travel contrasts with lacklustre growth in buses, which in December prompted Stagecoach to warn that profits in this division would be lower than expected.
Despite the falling price of oil offering some relief as petrol prices ease, Stagecoach is facing an uphill climb to expand its bus routes. It runs buses in towns and cities from Eastbourne to Elgin, making it the biggest regional bus operator in the country.
Margins outside of the capital run to more than 14pc, compared with 10pc on the more tightly regulated London routes, yet passenger numbers are falling in some areas and analysts believe the Government could hand greater powers to local authorities.
Shares in Stagecoach closed the week at 406.6p, near their highest ever level. They are up 10pc since the election, when it became clear a Labour government would not be imposing more state controls.
Source: TheTelegraph