FirstGroup shares rise after profit jump, new £50 mln buyback announced

FirstGroup plc reported a 9% increase in adjusted operating profit to £222.8 million and a 16% rise in adjusted EPS to 19.4 pence, exceeding expectations, prompting a new £50 million share buyback and a raised price target from RBC Capital Markets. The transport operator's growth was driven by strong performance in both its First Bus and First Rail divisions, with notable contributions from recent acquisitions and increased passenger revenue, and the company expects to maintain adjusted EPS in fiscal 2026.

Analysis

FirstGroup plc (FGP) demonstrated robust financial health in its fiscal year ending March 29, reporting a 9% increase in adjusted operating profit to £222.8 million and a significant 16% rise in adjusted earnings per share to 19.4 pence, surpassing analyst expectations. This performance, underscored by adjusted revenue growth to £1.37 billion from £1.28 billion, triggered a more than 6% rise in its share price and prompted the announcement of a new £50 million share buyback program. The company also proposed a final dividend of 4.8 pence, bringing the full-year total to 6.5 pence, exceeding the consensus estimate of 6.3 pence. Reflecting this strength, RBC Capital Markets raised its price target for FGP to 220 pence from 215 pence, citing earnings and balance sheet resilience; adjusted net debt stood at £86.9 million, favorably below both market consensus and company guidance. Capital investment reached £389.9 million, primarily directed towards fleet electrification—with 20% of the fleet now electric—and strategic acquisitions, such as the RATP London purchase (now First Bus London), which contributed £23.2 million in revenue and £0.6 million in adjusted operating profit in its initial period. Notably, expected investment to cover London Bus losses and capital costs has been revised down to £10 million over two years from a prior £30 million. The First Bus division achieved an 8.9% adjusted operating margin and a profit of £96 million, up from £83.6 million, with daily passenger journeys averaging 1.13 million. The First Rail division also saw its adjusted operating profit increase to £148.8 million, supported by a rise in open access operations revenue to £106.4 million, with Hull Trains and Lumo passenger revenues growing 12% and 8% respectively. FirstGroup's expansion strategy includes secured track access for new open access routes (London to South Wales, London to Stirling), expected to nearly double open access capacity, with further applications potentially trebling this capacity. The company anticipates £120 million in cash inflows over three years from Department for Transport contracts following the South Western Railway transfer. While FirstGroup projects to at least maintain adjusted EPS in fiscal 2026, RBC Capital Markets forecasts growth, indicating potential upside.

Key Decisions for Investors

• Investors should view FirstGroup's strong earnings, increased dividend, and new share buyback program as positive catalysts, supported by operational improvements and strategic acquisitions.
• Consider the growth potential from the expansion of open access rail routes and the ongoing electrification of the bus fleet, which align with broader market trends and sustainability objectives.
• Monitor the company's ability to integrate acquisitions effectively and realize synergies, as well as the execution of its capital investment plans, particularly concerning the new rail routes and the £10 million London Bus investment.
• Note the conservative company guidance for fiscal 2026 EPS compared to more optimistic analyst outlooks like RBC's, which could present an opportunity if the company outperforms its own expectations.