Stagecoach's roadblocks are behind it, Citi reckons

After a bumpy few months, Stagecoach has a more open road ahead, Citigroup believes, upgrading its recommendation on the train and bus operator.

The bank upgraded Stagecoach shares to 'neutral' from 'sell' with a target price of 171p, saying the worst of the negative catalysts are behind the company now.

When he began coverage of the FTSE 250 group in April, analyst Peter Larkin highlighted the risk of a significant cut to the dividend.

As part of the full year results, which were published at the end of last month, directors cut the dividend to 7.7p per share, down from 11.9p in 2017, saying it needs to be set at a level from which it can grow over time and be covered by normalised non-rail cash flow.

A key reason was that the decline in profits as Stagecoach took a £85.6m hit from the loss of the East Coast rail contract, which the government stripped from the company in May.

"Although we see some further risks remaining, the worst now appears to be behind and as such we think a sell rating is no longer appropriate and upgrade to neutral," Larkin said.