LONDON (SHARECAST) - Transport company FirstGroup has said that it still expects to take over the West Coast rail franchise from Richard Branson’s Virgin Rail before the end of the year in spite of the legal challenge launched by the latter to the Department for Transport (DfT).
Virgin Rail, the joint venture between Stagecoach and Virgin Group which has run the West Coast franchise since 1997, saw its £4.8bn bid to renew the contract bettered by FirstGroup’s £5.5bn bid in August.
The outbid party has since accused the DfT of not following its own rules in deciding to grant FirstGroup the franchise, with Virgin tycoon Branson blasting the bidding process as “insane”.
In a statement on Tuesday morning, FirstGroup said: “We have every confidence in the DfT's process which is rigorous, detailed and fair and in which bids are thoroughly tested.
“Our focus is to ensure a smooth transition with continuity for staff and passengers alike and to deliver the many benefits and improvements we are offering without delay or disruption. We continue to prepare for a successful mobilisation on 9 December 2012.”
Panmure Gordon analyst Gert Zonneveld said today that the franchise, assuming Virgin Rail’s legal challenge is unsuccessful, “should provide a significant contribution to [FirstGroup's] short- to medium-term group earnings”. A failed challenge by Virgin could provide a “near-term catalyst” for the stock, though there are relatively few other things to excite the shares at the moment, he said.
UK Rail drives a solid first-half performance
Tuesday’s remarks were made in FirstGroup’s pre-close first-half trading update, in which it said that it is also shortlisted for all three rail franchises currently out for tender. UK Rail like-for-like (LFL) passenger revenues are expected to rise by 8.1% in the six months to September 30th.
UK Bus LFL passenger sales rose 2.5%, though challenging economic conditions continue to have an impact on a number of its urban operations. However, the group said that the North of England and Scotland saw improved growth.
"I am pleased to report overall trading for the first half of the year is in line with our expectations," said Chief Executive Tim O'Toole.
"With a fundamentally strong and diverse portfolio of operations we are focused on driving a greater performance and delivering improved growth and returns. While there is significant work to do we are satisfied with the progress of the actions we have taken, though we remain mindful of the uncertain economic backdrop," he said.
As for FirstGroup’s North American operations, its school bus division, First Student, is expected to see a 3.8% drop in US dollar LFL sales, though the group assured that the business is set on the path to recovery and margins will exceed last year.
US dollar LFL revenues at the bus transport unit, First Transit, are expected to increase by 3.2%. Meanwhile, intercity bus division Greyhound has seen 1.7% growth which the group says reflects the impact of the sluggish economic environment and lower fuel prices.
By 15:06 this afternoon, FirstGroup was trading 1.41% higher at 243.90p.