There are parallels in the transport world with the deregulation and consolidation that has caused so much excitement in shares in radio and TV companies. The story starts in the mid-1980s, when the National Bus Company was broken up and numerous bus companies were sold to their managements. The best have fought through a long recession and have been coming to the stock market. Less successful companies have sold out to the quoted groups in what has become an acquisition frenzy. The result is that the old National Bus Company is re-coalescing in five or six groups.
The latest stage has come with the sale of the London bus companies. The London network is not being deregulated; the bus companies are buying the right to operate routes for a period of years. Two of the four quoted bus companies, the Go- Ahead Group and Badgerline, have bought into London, as has a new entrant, T Cowie, the quoted car contract-hire specialist. Others have gone to management buyouts, but may well end up owned by the larger quoted concerns.
Profits growth is coming from private company management disciplines and the absorption and revitalisation of less efficient operators. The industry itself is in slow long-term decline as car ownership grows.
The pace of the acquisition process makes it clear that the decision to go public has not been for managements to make a killing on the stockmarket, but to enable them to use their public status to do deals. All four of the quoted bus companies have been buying up rivals. But, sensibly, they are sticking to what they know. The nearest to a diversification has been National Express with its purchase of East Midlands Airport. The company argues that this is a direct application of its skills in organising large volumes of passengers through terminals and transport networks. The acquisition has been a success, and the company iseager to buy further regional airports.
The companies are also investing heavily. Badgerline, for instance, has just announced plans to spend pounds 24.5m on 576 new buses. Coach operator National Express, which dominates the UK long-haul market, has finally seen some increase in passenger volumes, partly because of economic recovery but also because of a new and lower tariff structure.
Prospects for all the groups look excellent in the short and medium term. Edward Stanford, at stockbroker Albert E Sharp, reckons there should be at least five years of steady growth ahead, with dividends moving up strongly. Badgerline, 116p, which recently reported a 28.6 per cent increase in half- year earnings per share excluding recurring items, he expects to report earnings per share of 9.5p for 1994 and 10.8p for 1995, dropping the p/e to 10.8 on the latter figure, with a prospective yield of 5.3 per cent. Unlike the others, the shares have not made much progress since flotation last November. This reflects disappointment with a hefty and unexpected property write-down, when a site failed to win planning approval for a supermarket. The shares should soon make up for lost time.
National Express shares have roughly doubled to 314p, having been floated in December 1992. Much of the gain reflects investor approval of the regional airport strategy. The company is eager to buy more airports, but is not finding it easy to do deals. Meanwhile, on forecasts of 1995 earnings per share comfortably topping 20p, after 18-19p for calendar 1994, the shares look solid value.
Biggest of the bus companies is Scottish-based Stagecoach, with operations stretching from Inverness to the south coast of England. Profits are expected to top pounds 32m in 1995/96 to give earnings per share of 15.3p, and a p/e of 13.7 for a prospective yield of 3.5 per cent at 210p. That looks attractive value for a group with much- admired management skills.
Last but not least are the well-named Go-Ahead Group at 151p and GRT Bus Group at 211p. The former has roughly doubled in size with its acquisition of London Central Bus Company. A note from stockbroker Panmure Gordon highlights an earnings per share progression expected to run from 8.2p for 1993/94 to 10.8p and then 15.6p to drop the p/e for 1995/96 into single figures with a yield of 4.5 per cent. Aberdeen-based GRT focuses particularly on higher-margin urban-centre bus services and should see growth accelerating in 1995/96 when earnings per share are expected to reach 17p for a p/e of 12.2 and a yield of 3.3 per cent. In nervous markets, shares in Britain's bus and coach operators offer an attractive combination of defensive appeal plus growth potential.
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