Stagecoach profits as petrol prices deter drivers

Stagecoach reported higher profits yesterday as clogged-up roads and soaring petrol costs boosted demand at its bus and rail businesses.

The company, which runs some 7,000 buses and coaches in the UK and nearly 3,000 across North America, said customers were looking for cheaper alternatives to driving.

Rising oil prices in recent months have pushed up petrol costs, although an intervention in the commodity markets by the International Energy Agency last week has delivered some moderation in the cost of filling up at the pump.

But a mid-May survey of 11,548 AA members, for instance, found that 76 per cent had cut back on car use or on other spending – or in some cases, on both – to compensate for higher fuel prices. The result contrasted with an earlier AA/Populus poll over late December and early January, which showed that 63 per cent had made similar cutbacks over that period.

Stagecoach's chief executive, Sir Brian Souter, said the high prices were driving demand for its services.

"We are seeing higher demand for our bus and rail services in the UK and North America, with further evidence of modal shift as consumers look for better value and more convenient transport alternatives to the rising cost of motoring and increasing road congestion," he said, adding: "We look forward with confidence to the year ahead. Public transport is central to supporting economic growth and meeting the global challenge of climate change... We believe the outlook for our bus and rail services is positive."

The upbeat comments were supplemented by good results for the year to the end of April. Stagecoach said pre-tax profits had climbed to £206m, up from £161m in the preceding 12 months. The jump came as revenues rose to £2.4bn from £2.16bn last year. Reflecting the performance, the Scotland-based group raised its full-year dividend by more than 9 per cent to 7.1p per share.

Divisionally, revenues at the UK bus arm were up 2.1 per cent, while the UK rail business, which encompasses the South West trains franchise, saw 4.2 per cent growth.

The group's 49 per cent-owned Virgin Rail venture, which operates the West Coast trains franchise, also saw strong growth, with revenues up 10.5 per cent. On the other side of the Atlantic, Stagecoach said its North American coaches arm posted revenue growth of 8.3 per cent. Analysts at Panmure Gordon said that while higher oil prices did present challenges for the group, the trend among consumers should more than offset the impact of fatter fuel bills.

They also highlighted the prospect of a possible capital boost for Stagecoach shareholders.

"[The board] intends to report the conclusions of its capital structure review in August ... which we believe is likely to result in a return of capital to shareholders," they said.