Franchise news sinks FirstGroup, Stagecoach shares

Shares of Aberdeen-based rail and bus giant FirstGroup plc fell as much as 15% on Monday after it published details of the UK Department for Transport’s extension of emergency funding arrangements for the UK rail industry for the next six to 18 months.

Analysts said train companies have been given less lucrative temporary contracts ahead of a major shake-up in the way the UK rail system operates.

The UK government has avoided a full nationalisation of the rail system but said it would eventually introduce a new model to replace the franchise system.

Shares of Perth-based Stagecoach bus and rail group also tanked on Monday — losing 18% of their value.

“The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working,” said Transport minister Grant Shapps.

FirstGroup said: “New Emergency Recovery Measures Agreements (ERMAs) came into force yesterday for our South Western Railway (SWR), TransPennine Express (TPE), and West Coast Partnership (WCP, comprising HS2 shadow operator and Avanti West Coast) operations.”

The company said passenger volumes on its First Rail operations have increased modestly from the lows of 95% below pre-pandemic levels on average in late March and April, but still remain 70% lower across its operations.

“The Government has extended its funding of the rail industry whilst demand for services remains heavily affected by coronavirus, and we are pleased that the vital nature of rail services to communities and local economies is being recognised,” said FirstGroup CEO Matthew Gregory.

“Passengers can be confident that public transport is safe and across our rail networks we have increased service levels to provide more capacity as schools restart and many more workplaces and other facilities reopen.

“We are now operating around 90% of the rail services we were prior to the pandemic.

“We will continue to bring all our expertise to bear alongside Government and industry partners to deliver the next phase of recovery of the rail network.

“Together with the earlier GWR extension, these agreements reinforce our balance sheet position and provide a potential path for our rail business to move onto a new contractual footing over time, with a more appropriate balance of risk and reward for all parties.

“We have long advocated for a more sustainable long-term approach to the railway, with passengers at its centre, and we look forward to working constructively with the DfT to make this a reality.”