Stagecoach shares plunge as City commuter numbers fall

SOME £200 million was wiped off the value of Stagecoach yesterday as the City braced itself for a profit slowdown at the transport giant's rail business.

The group, which had been seen as a defensive investment amid increased use of public transport, said a rising tide of commuter job losses would hit earnings next year.

It was the FTSE 100's biggest faller, as shares plunged 16.5 per cent to 143.2p, slashing the Perth-based firm's market value to just above £1 billion, and casting a shadow over rival transport stocks.

Stagecoach – operator of South West Trains (SWT) and the East Midlands franchise into London's St Pancras International – plans job cuts of its own in areas such as support services and administration as it braces itself for the fallout from a weaker economy.

Chief executive Brian Souter described the short to medium-term outlook for Stagecoach's UK rail operations as "challenging" and said the firm would look to boost revenues through other measures including the increased use of automatic ticket gates.

It also plans to raise regulated fares at SWT in January by an average of 6 per cent and unregulated fares by 7.2 per cent on average.

Souter said the inflation- busting rises were necessary as "our costs have gone up above inflation".

The market rout came despite Stagecoach posting a 24 per cent rise in half-year profits to £105.2 million. Rail operating profits in the six months to 31 October topped £31.7m, up from £25.3m a year earlier.

In a note to clients, brokerage Cazenove said: "These are solid results but the market is likely to focus on the more bearish outlook for rail."

Analysts at Investec added: "We think the shares are likely to remain under pressure while uncertainty on rail volumes remains."

Despite the profit warning, analyst Andrew Fitchie at Collins Stewart rated Stagecoach shares a "buy". "There is clearly risk to earnings, but the shares have already halved reflecting this issue," he said.

Stagecoach said it was too early to specify the number of job cuts planned, but union officials said they feared 300 posts were at risk. The train operation employs about 8,000 people, excluding those working for the company's rail joint venture with Virgin.

Stagecoach said its experience in previous downturns suggested its bus operations were likely to be more recession-proof.

The UK bus division posted an 11.8 per cent increase in half-year revenues to £410.4m, with operating profits up to £60.9m from £52.5m a year ago.

Finance director Martin Griffiths stressed the rail business was still experiencing good growth, although it had slowed in the past six to 12 months.

"We don't know how much further that will deteriorate, but there's a lot of uncertainty out there in the economy and we suspect there will be further job losses in the City," he said.