Sir Brian Souter, the bearded philanthropist, must be wondering what it’ll take to get Stagecoach motoring again. The Scottish tycoon, who founded the bus, coach and train operator with his sister in 1980, has watched its shares head steadily south over the past year.
They are down almost 40% and ended last week at 224p, leaving Souter’s clan about £211m poorer from their combined 26% stake. All of this while fuel prices are at rock bottom.
Partly to blame is the Virgin East Coast rail franchise, in which Stagecoach holds a 90% stake. Things there have not gone quite to plan: revenues are well behind its wildly optimistic 8%-9% growth target. Everything from terrorism to airlines is eating into Stagecoach’s plans, leaving its pledge to pay the government £3.3bn in premiums over the course of the franchise looking unlikely. It’s not handing back the keys just yet, though — it could get some relief from a clause that kicks in if GDP falls.
But East Coast woes alone do not explain the share price collapse. More telling is that Stagecoach’s other rail franchises — West Coast, South Western and East Midlands — are up for grabs in the next two years. It would be some feat to retain all three. And given its recent experience with over-optimistic bidding, I cannot see Stagecoach blowing the doors off to win them. Which means the shares may have further to fall. Could that be the catalyst to take the business private? Stranger things have happened. Hold.
GKN shares took flight as traders bet on rumours of a Chinese bid for the aerospace and car parts giant, ending up 6% at 328.8p. That seems unlikely, given its £2.1bn pensions deficit.
Could it have its own deal in the making instead? GKN must propel its Driveline business into the fast-growing world of electric cars. There are deals to be had: Fiat-maker FCA is selling its Magneti Marelli parts business. But GKN has poked under that bonnet and is looking farther east. A deal in China’s booming auto industry might be a good place to start. Buy.
Danny Fortson is away
