Stagecoach foresees end to dispute

Stagecoach, the bus and rail operator, sought to bury the hatchet with the government as it revealed that a long-running dispute over franchise payments would be resolved by April.

Brian Souter, chief executive, had accused the Department for Transport in June of being either “dsyfunctional or chaotic” in its dealings with train operators. But on Wednesday he said the relationship had been repaired and that Lord Adonis, transport secretary, had “responded positively to the industry’s distress”.

Train operators have suffered from a decline in passenger revenues during the recession, with the government forced to pay out large sums to help some rail operators meet their contractual commitments.

The dispute with the DFT, which will be resolved by the rail arbiter, centres round the amount of revenue support that Stagecoach should receive for South-West Trains, the country’s second most expensive franchise, which runs between Surrey and London’s Waterloo station. Stagecoach says it could be owed more than £100m.

Mr Souter’s emollient stance came amid signs that the decline in passenger numbers had bottomed out. Revenues in Stagecoach’s UK rail business, which includes the East Midlands franchise and a 49 per cent stake in Virgin Rail, rose 5.4 per cent in the half year to the end of October, beating analysts’ expectations. First class ticket sales on trains were down 20 per cent on the year, as passengers shifted to cheaper tickets.

But Mr Souter said “anything discounted” was selling well and he would steer the company through the recession with more cheap deals.

Special offers also drove the bus unit, where revenues rose 4.4 per cent in the six months to October in the UK. But revenues at its North American business fell 24.8 per cent to £124.2m.

Stagecoach said it remained interested in acquisitions after its failed bids for rival National Express. But Mr Souter sought to draw a line under an often acrimonious takeover battle saying he would not make another offer soon. “National Express has launched a rights issue; and they’ve lined up a chief executive. Life changes after that,” he said.

Revenues for the six months to October 31 rose from £1.05bn to £1.08bn but pre-tax profits fell from £100.7m to £67.3m, hit by higher fuel and pension costs. Stagecoach shares closed up 7.9p at 157.8p.

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• FT Comment

These are tough times but Stagecoach has a strategy to deal with them – cutting costs and making discount offers. The rise in the dividend – from 1.8p to 2p a share – is punchy and reflects confidence. At 10.5 times current year earnings it is worth getting on board for the stock.

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