FirstGroup will celebrate its arrival as the world's biggest public transport combine in mixed fashion on Wednesday. Sir Moir Lockhead is due to check in with news of sharply increased profits but he has seen his share price crumple to new lows (link below.)
http://www.rmtbristol.org.uk/2008/11/firstgroups_us_exposure_proves.html#moreThe half-year results will be the first to include a full contribution from the transformational acquisition of the US Laidlaw group in February last year and brokers expect to hear of a 40% lift in pre-tax profits to around ^105 million together with a double-digit rise in the dividend.
Even so, FirstGroup's shares were among those to miss out on last week's share-price rally, instead hitting new 2008 lows and falling to half the levels of a few months ago.
The share-price performance reflects concerns over the impact of the still comparatively strong dollar on debt levels and interest charges together with the potential loss of commuter rail traffic as a result of a recession.
At the present share price, the company has a stock-market value of only a little over ^2 billion, which compares with the $3.7bn paid for Laidlaw.
Terms of the acquisition translated into ^1.9 billion at the currency exchange rates at the time it was announced 20 months ago but have since ballooned to some ^2.3bn at a current rate of around $1.61 to the pound.
At the same time, brokers point out that the group also faces rising fuel costs despite falling prices elsewhere because the group failed to hedge against currency risks when it bought in its requirements for the next two years at oil prices between $76 a barrel and $111 a barrel.
Followers say Lockhead will dismiss the concerns this week and will point out that the increased costs are more than balanced by the extra value of dollar earnings from Laidlaw's school buses and the Greyhound coaches operation.
He is also expected to reassure investors that the group has made good progress in refinancing a $2.25bn loan facility that was due to be repaid by February 2010.
The group has already rearranged some $1.45bn of this debt, including last month's ^300m bond issue, and a further financing deal is believed to be imminent.
Most brokers say the debt will be paid back out of cash flow over the next three or four years although interest charges this year are likely to almost double to around ^160m and will work out at a minimum of ^75m at the half-year stage.
Before deducting these costs and exceptional charges, Damian Brewer at JP Morgan expects the group to achieve a 65% lift in operating profits to around ^180m for the opening six months of the year.
Almost half the money should be earned from US buses where Greyhound is expected to turn in a particularly strong performance over the summer months as a result of increasing business from hard-pressed motorists.
And the American contribution should be still more significant in the second half as the group cashes in on the school bus contract season. Brewer expects the US to chip in with ^275m out of total operating profits of ^503m at the full year.
UK▸ buses and rail are also expected to show good growth at the half-year stage although some analysts have been trimming back future forecasts for the rail side on concern that growth could falter if there is a sharp increase in unemployment.
They point out that roughly 10% of FirstGroup's rail revenue comes from London commuters, who are likely to be particularly hard hit by the financial recession.
Despite their reservations, no fewer than eight out of 10 analysts polled by the Digital Look news service believe the share-price fall has been overdone and say the shares are worth buying at current levels.
Their average forecasts predict a profits rise from last year's ^242m to at least ^340m in the current financial year with a further increase to around ^366m predicted for 2010.
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