FirstGroup on the Verge of Halting its Trading Activities

Summary

• FirstGroup, a transport operator, admitted mulling over ceasing its trading activities because of Coronavirus pandemic
• The company has incurred a loss of £300 million for the financial year 2020
• Stock price of the company fell by more than 20 per cent on 8 July 2020
• A decline was seen in the passenger traffic for its bus and rail divisions due to the lockdown

On 7 July 2020, FirstGroup declared that it could stop its trading activities because Coronavirus has badly disrupted its business operations.

The company has incurred a loss of £300 million for its financial year ending 31 March 2020. Hence there is a 'material uncertainty', casting doubt on whether to continue to operate or not. This is despite the fact that the company’s long-term fundamentals are still reasonably fine.

The stock price of the company fell by more than 20 per cent on 8 July 2020, recording a decline of more than two-thirds since February 2020.

The lockdown announced by the British Government to stop the transmission of Coronavirus has forced the people to stay indoors, impacting the transportation sector in a big way. The operator has received emergency funding to continue operating, but it cannot be predicted as to how the crisis would further impact the transportation services.

The FirstGroup PLC aims to sell its US bus operations.

Passenger trend across British rail network

The Office for Rail and Road, UK, recently published a report stating the quarterly statistics of passengers' rail usage in Great Britain. The report covers the scenario before the pandemic and immediately after the lockdown was announced when people were not allowed to move out of their houses.

The report is divided into four parts- passenger journey, passenger kilometres, passenger revenue, and passenger train kilometres. The main finding are as follows:

• Passenger journey - There was a decrease of 11.4 per cent by 51 million in the number of passenger journeys in the Q4 2019-20 in comparison with that of Q4 2018-19. The Long-distance component saw the largest decline of 16.3 per cent, the London and South-East sector declined by 11.9 per cent, and the Regional segment declined by 7.9 per cent.

• Passenger kilometres- There was a decrease of 14.9 per cent by 2.5 billion in the number of passenger kilometres travelled during Q4 2019-20 in comparison with that of Q4 2018-19. The Long-distance component witnessed the largest decline of 22.1 per cent, the London and South-East sector plummeted by 11.8 per cent, and the regional segment slipped by 9.6 per cent.

• Passenger revenue- There was a decrease of 15.1 per cent by £395 million in the total passenger revenue generated during the Q4 2019-20 in comparison with that of Q4 2018-19. The Long-distance component saw the sharpest decline of 21.4 per cent.

• Passenger train kilometres- There was an increase in the passenger train kilometres usage by 0.4 per cent during the Q4 2019-20 in comparison with that of Q4 2018-19. An increase of approximately 5 per cent was recorded in the first three quarters of 2019-20. Operations were suspended by Hull trains on 30 March 2020.

Passenger trend across the British bus transport sector

The Office for National Statistics, UK, published a report in June 2020 which shared the latest available quarterly bus statistics for Great Britain during January to March 2020. The report covers local bus passenger journeys and fares.

There was a decrease of 4.3 per cent to £4.59 billion in the number of local bus passenger journeys in Q1 2020 in comparison with the numbers of Q4 2019. In the year to March 2020, local bus fares increased by 2.6 per cent, faster than the all-items Consumer Prices Index rate of inflation (1.5 per cent). However, these numbers reflect the data for only one week of lockdown, which was imposed on 23 March 2020. The data for Q2 2020 is expected to showcase a much sharper drop in bus travel statistics.

Financial Updates of FGP

On 8 July 2020, FirstGroup released its final results for the fiscal year ending 31 March 2020. The company strategically prioritised on the health and safety of its passengers and employees. The Group's revenue increased by 8.8 per cent from £7,126.9 million in 2019 to £7,754.6 million in 2020. The revenue growth balanced the industry cost pressure, which included the labour and insurance cost. Before the outbreak of the pandemic, the trading trend was consistent throughout the year. A decline of approximately 90% by month ending March was evident due to the impact of Coronavirus. The lockdown resulted in the closing of all the North American schools. Additional payments and levies such as Greyhound impairment charges, restructuring and reorganisation costs and coronavirus-related charges resulted in a statutory operating loss of £152.7 million (2019: profit of £9.8 million). The adjusted profit before tax and adjusted EPS decreased by 48.2 per cent and 49.6 per cent respectively because of the increase in finance cost due to the first-time adoption of IFRS 16 (lease accounting).

Stock Performance

First Group PLC (LON:FGP) stock was trading at GBX 39.50 on 9 July 2020, at 9:13 AM, up by 4.18 per cent from its previous close of GBX 37.84. The current stock price was reported to be 28.4 per cent higher than the 52-week low price, which was GBX 28.28 and 248.1 per cent lower than the 52-week high price, which was GBX 137.50. It was having a market capitalisation (Mcap) of £ 461.52 million. The volume traded at the time of reporting was 1,258,063. The company recorded a negative return on price, which was 70.30 per cent on a YTD (Year to Date) basis. The Beta of the company stood at 2.0, indicating that the volatility of the stock is higher than the benchmark index.

Conclusion

The onset of the outbreak of Covid-19 was followed by the lockdown from 23 March 2020, which affected the passenger travel across all the sectors, be it bus, rail or airlines. Though First Group plc received emergency funds from the government and also took loan from the Bank of England in order to continue its operations, but lack of cash flows is putting pressure on its current operations and it might cease its trading activities.