From: http://business.scotsman.com/transport.cfm?id=2200442005
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RISING fuel costs are undermining FirstGroup's profitability despite a successful crackdown on ScotRail fare dodgers, the company is expected to reveal this week.
JP Morgan, the broker, expects the transport operator headed by Moir Lockhead to announce pre-tax profits of £46.5m for the first half of the financial year, down 28% a year before.
The Aberdeen company cannot push through bus fare increases fast enough to pay for more expensive petrol, according to Damian Brewer, a transport analyst at JP Morgan.
Brewer, who slashed £4.6m from his forecast of full-year profits for FirstGroup, said: "Cost pressures from fuel, and a lagged mismatch of fare increases to the operating cost rises, are being seen ... this lost revenue is hard to recover."
Increasing fares may not help First, Brewer warned, because the higher fares may deter passengers from using buses.
Rising fuel prices mean First's UK bus division is its poorest performer. Fuel prices have been at historically high levels for more than a year, but have taken a while to impact on corporate profits because heavy fuel users like FirstGroup tend to hedge against price rises.
JP Morgan's Brewer said that FirstGroup could rescue its bus division profits by moving buses to areas where passengers were more likely to accept higher fares.
FirstGroup's rail operations, including ScotRail, have performed much better - in part because of the introduction of ticket barriers at major stations. The UK rail business is likely to show a modest increase of around 5% in operating profits.
Analysts also see the railway division as offering First's best prospects for growth. The company derives less profit from its rail franchises than competitors Stagecoach, National Express and Go-Ahead, so it has more to gain from the current round of new franchise allocations.
First is in the running for the Greater Western franchise, an enlarged version of the Paddington to Wales network which it already manages, as well as the Integrated Kent network and the Thameslink commuter lines though London.
UBS, the broker, upgraded its recommendation on FirstGroup from hold to buy because it has these three opportunities to win rail franchises. Tim Marshall, a UBS analyst, said: "It is on the shortlist for each franchise, but we believe this is not reflected in the price."
Analysts also expect First to expand its bus operations in the US through a programme of acquisitions. The company was recently beaten by National Express to acquisition talks with a Spanish bus company, Alsa.
Aberdeen City Council recently gave First permission to build a new headquarters on the outskirts of the city, reversing an earlier decision by the council's planning committee to block the scheme.
First's shares closed at 326.75p on Friday, down from a peak of 379.25p in February.
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Surely, if they don't want to push up bus fares (which are expensive enough ATM), they could always leave them as they are and give their shareholders a smaller dividend for a while.[/img]
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RISING fuel costs are undermining FirstGroup's profitability despite a successful crackdown on ScotRail fare dodgers, the company is expected to reveal this week.
JP Morgan, the broker, expects the transport operator headed by Moir Lockhead to announce pre-tax profits of £46.5m for the first half of the financial year, down 28% a year before.
The Aberdeen company cannot push through bus fare increases fast enough to pay for more expensive petrol, according to Damian Brewer, a transport analyst at JP Morgan.
Brewer, who slashed £4.6m from his forecast of full-year profits for FirstGroup, said: "Cost pressures from fuel, and a lagged mismatch of fare increases to the operating cost rises, are being seen ... this lost revenue is hard to recover."
Increasing fares may not help First, Brewer warned, because the higher fares may deter passengers from using buses.
Rising fuel prices mean First's UK bus division is its poorest performer. Fuel prices have been at historically high levels for more than a year, but have taken a while to impact on corporate profits because heavy fuel users like FirstGroup tend to hedge against price rises.
JP Morgan's Brewer said that FirstGroup could rescue its bus division profits by moving buses to areas where passengers were more likely to accept higher fares.
FirstGroup's rail operations, including ScotRail, have performed much better - in part because of the introduction of ticket barriers at major stations. The UK rail business is likely to show a modest increase of around 5% in operating profits.
Analysts also see the railway division as offering First's best prospects for growth. The company derives less profit from its rail franchises than competitors Stagecoach, National Express and Go-Ahead, so it has more to gain from the current round of new franchise allocations.
First is in the running for the Greater Western franchise, an enlarged version of the Paddington to Wales network which it already manages, as well as the Integrated Kent network and the Thameslink commuter lines though London.
UBS, the broker, upgraded its recommendation on FirstGroup from hold to buy because it has these three opportunities to win rail franchises. Tim Marshall, a UBS analyst, said: "It is on the shortlist for each franchise, but we believe this is not reflected in the price."
Analysts also expect First to expand its bus operations in the US through a programme of acquisitions. The company was recently beaten by National Express to acquisition talks with a Spanish bus company, Alsa.
Aberdeen City Council recently gave First permission to build a new headquarters on the outskirts of the city, reversing an earlier decision by the council's planning committee to block the scheme.
First's shares closed at 326.75p on Friday, down from a peak of 379.25p in February.
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Surely, if they don't want to push up bus fares (which are expensive enough ATM), they could always leave them as they are and give their shareholders a smaller dividend for a while.[/img]