US posse helps boost Stagecoach

Despite a tumbling share price, Brian Souter's company is interesting American investors, reports John Williams

APOSSE of American institutional investors is betting against the crowd in the hope Brian Souter will be able to convince the stockmarket that his Stagecoach transport group is on the right track when it produces eagerly-awaited yearly figures on Wednesday.

Recent buying by the US "value funds" is cited as a key factor in helping the shares pick up from a low point of just 52.5p in the face of selling by UK investors who are worried about prospects for the Scottish rail, bus and coach colossus.

The timing of the purchases has been particularly useful for the company as it has suspended its own #250 million share buy-back programme in accordance with stock exchange rules ahead of the publication of its figures.

Current nervousness comes at a time when most stockbrokers are forecasting a sharp profits acceleration for the group as a result of last year's #1.2 billion expansion in the USA. The consensus view is for a rise in the pre-tax figure from #210m to around #260m.

After Souter, one of the main shareholders is Franklin Mutual Advisers, which now has just more than 7% of the stock. Franklin Mutual Advisers is a wholly-owned subsidiary of Franklin Resources, whose main business is the #200bn Franklin Templeton Group, which now includes six mutual series funds with assets of #25bn. Stagecoach might be under pressure as "old" value stock, but the company remains highly cash generative.

However, analysts have been concerned that the 46-year-old chairman may have taken his eye off the ball as a result of his personal involvement in the Section 28 referendum and the abrupt departure of former chief executive Mike Kinski, who was replaced by in-house finance director Keith Cochrane. Apart from the management question, brokers also want to hear details on how the group is cutting high costs of operating across the Atlantic.

They would also like to hear a progress report on Stagecoach's plans to renew franchises for its own English South West Trains operation - basically a consistent revenue earning commuter line - and the Virgin Rail Group joint-venture which takes in the much maligned Glasgow-to-London west coast operation. It has been putting new trains on the track which will improve punctuality. Stagecoach is also bidding for the East Coast mainline in a TGV-style bid along with Virgin.

Apart from its rail operations, Stagecoach is also a dominant player in the UK bus market, where it has 19 separate companies accounting for 745 million passenger trips a year. In Scotland, it takes in the Western, Bluebird and Fife operations.

The company's American bus and coach interests stretch across 35 states and other overseas interests include the biggest commuter travel operation in Hong Kong. However, analysts feel Coach US has no real potential to deliver in the next six months and that it has to be viewed as a longer and steadier investment. The group also operates Prestwick Airport, which is believed to be up for sale.

There have been rumours that Souter and his sister, Ann Gloag, could use their 20% shareholding as a spring-board to take the group private, although Stagecoach maintains that this possibility is not under consideration.

Any bid would have to be well above the current share price level of around 63p to appease unhappy shareholders who have seen the price tumble from 246p in the past year.

But even at the current levels, Stagecoach still has a stockmarket value of approaching #900m.

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