FirstGroup is just the ticket in US

Strong Caffè Nero stays on the boil; Better to sell Maiden after first-half loss
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The Independent Online

Ding Ding. All aboard. The City's transport sector analysts were travelling the school bus route in Boston, USA, yesterday, courtesy of FirstGroup.

The UK-based transport operator is winning lots of new contracts in school buses in the US, and wanted to show off the 683 shiny yellow vehicles it is running in Boston for the first time this school year. First Student (as the US bus operations are called) has boosted its number of buses by 9 per cent this year and new business acquisitions are coming in at the top end of forecasts.

FirstGroup also took the opportunity to update investors on the performance of the rest of the group and, happily, everything is running according to the timetable.

The UK bus businesses in particular are performing strongly. In part that is thanks to Mayor Ken Livingstone, who has boosted bus subsidies and taxed motorists out of central London. FirstGroup's turnover in London is up 20 per cent on last year, and there is encouraging growth in its urban bus networks elsewhere in the country, which saw like-for-like passenger growth of 1.5 per cent in the first five months of the group's financial year. FirstGroup is simplifying its routes and working better with local authorities and, longer-term, it is sure to benefit from the roll-out of congestion charging across the country. Investors worry that rising wage costs will erase some of the gains from expansion, but FirstGroup is certainly on the right route.

As for rail, where FirstGroup has recently been selected as the preferred bidder for the new TransPennine franchise with its partner Keolis, the company has seen passenger income rise by 5 per cent in its two most significant regions.

The company is taking over GB Railways in a bid to get its hands on the Greater Anglia rail franchise, having failed to reach the shortlist itself. That bid is in, as are new bids for the Northern franchise and Scotrail. After the bitter row with the Strategic Rail Authority over Greater Anglia, it is to be hoped FirstGroup has mended enough fences not to have hampered its chances of winning some of these franchises.

Rising wages and other costs will keep the brakes on earnings growth in the current year, although there may be scope for share buybacks and there is a dividend of 4 per cent. Hold.

Strong Caffè Nero stays on the boil

How do you take your coffee? Weak, milky and "to go" from a US-style coffee bar? Or strong, dark and rich, sunk in the armchair of a European-style coffee shop, perhaps with a slice of cake and time to browse The Independent?

The UK coffee house market has not collapsed or even reached saturation point, as sceptics predicted (the price of a skinny latte is included in the inflation figures now, for heaven's sake) and industry experts reckon on more than 10 per cent growth a year for a while yet. But the UK market does seem to be consolidating around these two different styles, with Starbucks growing fast, and the Italian-style Caffe Nero growing fastest.

Annual results yesterday from Caffe Nero - which has 131 outlets to Starbucks' 350 but which is opening 35 new bars a year - showed it has broken into profit, with a £519,000 pre-tax gain compared with a £2.7m loss last time. By February, it will be funding its ambitious roll-out from cash generated at existing outlets, without having to tap its banks.

After that, Europe is its oyster, where the coffee shop market is relatively undeveloped despite the coffee-drinking habit being well ingrained. Most likely is a joint venture with a small existing Northern European player.

The sheer rate of growth available makes it worth keeping Caffe Nero shares (up 4p to 39p yesterday) on the boil.

Better to sell Maiden after first-half loss

WHEN THE billboard advertising group Maiden posted (or should that be postered?) a half-year loss yesterday, it looked like another blow for the optimists who have been tipping an upturn in the advertising industry. In his comments on the results the chief executive, Ron Zeghibe, said that "it is still too early to suggest a full recovery".

The company worryingly blamed continued margin pressure for a disappointing pre-tax loss of £1.9m in the first six months of the year, which led to a 12.5p drop in share price to 277.5p.

On the costs side, Mr Zeghibe is hopeful pressures will be eased when it renegotiates some big billboard rental agreements - with possible savings of up to £1.8m from one contract alone - but he may yet find that most rents actually increase.

On the issue of pricing power, the prospects for the future appear mixed at best. Aggressive new players such as Van Wagner have added to an already competitive environment, especially within the London and South East "golden triangle" which accounts for about half Maiden's panels.

Maiden's customers are booking ad space some eight weeks in advance now, approximately double the lead times of a year ago and giving some hope that this year's autumn upturn won't fizzle out as last year's did. But it is still well short of the historic industry average of 12 weeks.

With no other UK-quoted company in the outdoor advertising sector it is difficult to judge its price earnings ratio but at 27 times for 2003 it is at the high end of the range for other ad-dependent groups.

Without a significant upturn in the advertising market it is difficult to see where and when significant growth is going to come. Sell.