Stagecoach hit buffers on rail franchise

Stagecoach’s hopes of being awarded an extension to its South West Trains franchise without competition have been dashed after talks between the company and the Government collapsed.

The company had hoped for a direct award of the rail routes from Waterloo for at least two more years, but the bus and train operator said the two sides could not agree on the value of the franchise. Stagecoach has operated South West Trains since 1996, but could lose the line in a tender in 2017.

The rail franchise is one of Britain’s biggest: under Stagecoach’s ownership, passenger numbers have doubled and now stand at 220 million a year. However, the line is complex and there are big infrastructure works to be carried out at Waterloo over the next few years.

Delays and disruption caused by construction projects on commuter franchises around the capital, notably Thameslink, may deter other operators from trying to succeed Stagecoach.

The company’s shares fell 9.2p to 394.2p. Rob Scott Moncrieff, an analyst at Brewin Dolphin, explained: “The market tends to price in future rail franchises on a probability-adjusted basis.” The share price decline was understandable, he added, “given that the two year extension was all but guaranteed”.

Elsewhere in the business, Stagecoach has been shortlisted for both the TransPennine Express and East Anglia franchises.

It said it remains positive about opportunities in the UK rail market.

Mr Moncrieff said: “The upside scenario for Stagecoach for the next couple of years would be: winning the East Anglia franchise [in a joint venture with transport operator Abellio]; Megabus [its operation in the US] running ahead of expectations ... [and] receiving extensions to the East Midlands franchise and South West Franchise.”