FirstGroup shares decline amid cost concerns and drop in passenger numbers

FirstGroup, the United Kingdom’s largest listed train and bus operator, reported a sustained decline in its share price as it signalled rising cost pressures and lower bus patronage. Despite recording a modest 3 percent increase in operating profits for the six months ending September, the company’s shares extended their fall to 25 percent since the summer. Shares, which stood at 233p during the summer, dropped by 18.5p or 9.3 percent, closing at 181.75p on Tuesday.

The company attributed some of the downward pressure to the conclusion of its £50 million share buyback programme, with no new buybacks announced. Attention has shifted to growing net debt, which has increased to £207 million, as capital is redirected towards the electrification of FirstGroup’s bus fleet and business acquisitions intended to drive expansion. Additional cost concerns stem from the rise in employers’ National Insurance contributions, a material factor for a group of 29,000 staff.

FirstGroup disclosed a 4 percent reduction in bus passenger numbers. This fall has been linked to the expiry of the state-subsidised £2 fare cap introduced during the pandemic, and increased competition from pay as you go e-bikes in areas where they are available. Bus operations constitute about two fifths of group revenue and are set to comprise a larger proportion as its Avanti West Coast and Great Western Railway services are renationalised by the government.

The company’s open access rail operations, regarded as a key strategic focus, continue to generate discussion within the industry. Services such as Hull Trains and Lumo, which run in competition with government-owned routes, have delivered strong results, with revenues up 2.5 percent to £53 million. Operating profit for this division declined from £18.1 million to £16.3 million, citing engineering work by Network Rail and industrial action.

Overall, FirstGroup achieved operating profits of £103 million on revenues of £833 million, boosted by expanded London bus operations. Earnings per share rose by 16 percent due partly to the buyback, supporting a nearly 30 percent increase in the interim dividend to 2.2p.

Chief executive Graham Sutherland maintained a positive outlook, highlighting a strong balance sheet and a UK focused growth strategy. The future of FirstGroup’s open access operations remains under scrutiny as the government considers their post renationalisation viability, with the Office of Rail and Road instructed to monitor their impact on Treasury revenues and network congestion. Proposals for additional open access services have faced rejections, while industry debate continues regarding their broader benefits and financial effect on the national rail system.