FirstGroup lifts profit expectations thanks to open access rail performance

FirstGroup expects full-year profits to be slightly above previous forecasts, following strong performance in its rail business.

The owner of Avanti West Coast told investors that open access operations within its rail division were benefiting from healthy demand, “effective performance management” and the resolution of one-off infrastructure claims.

As a result, the Aberdeen-based company expects to beat analyst forecasts for adjusted operating profits of £196.8 million and adjusted earnings of £102.9 million.

In the six months ending in September, total trips on the company’s trains grew 8.9 percent to 123.4 million compared with the same period a year earlier, while passenger volume on its buses increased 12 percent to 210 million.

Since then, the FTSE 100 company said operations at its bus division had performed well and were in line with expectations.

Graham Sutherland, chief executive of FirstGroup, said: ‘Our focus on operational delivery, driving demand for our services and growing and diversifying our portfolio has resulted in further progress in the second half of our financial year.

“This leaves us well positioned to create more sustainable value for all our stakeholders.”

FirstGroup recently applied to operate an open access rail service from London to Sheffield and is holding talks with Transport Scotland and Network Rail about extending some of its London to Edinburgh to Glasgow journeys.

FirstGroup owns open access operators Lumo and Hull Trains; the former operates on the East Coast Main Line and the latter offers services between London and the Humber region.

Open access operators are companies that operate trains on main routes but do not have franchises with the UK government and do not receive taxpayer funding.

The ORR says they can boost competition throughout the rail sector by reducing prices and increasing the number of destinations served.

Gerald Khoo, an analyst at brokerage Liberum, said: “The prospect of a Labor government likely to commit to the renationalisation of passenger rail contracts is adverse to sentiment towards FirstGroup’s Rail division.

“However, open access operations and activities not related to train operation have significant value that should not be affected by renationalisation.”

FirstGroup slumped to a £68.4m first-half loss due to significant one-off expenses related to its withdrawal from two local government pension schemes.

first group shares They rose 1.9 per cent to 164.5p just after midday on Tuesday and are up about 58 per cent in the last 12 months.