Stagecoach shares drop after East Coast line impacts profits

Shares in travel group Stagecoach (LON:SGC) dropped over 10 percent on Wednesday, after earnings fell 83 percent over the year.

Pretax profit dropped to £17.9 million in the year ended April 29, 5.3 percent lower than the year before due to a one-off impairment charge of £130 million against its East Coast Trains arm.

Its unprofitable Virgin East Coast rail franchise, of which it owns 90 percent, proved a financial burden during the 2016/17 financial year, with chief executive Martin Griffiths saying revenue had not met the expectations envisaged when it bid for the franchise three years ago.

The figures were also impacted by a lack of demand in the wake of the recent terror attacks in the UK, with the two incidents in London having an effect on passenger numbers on their East Coast line connecting the North with London. Chief Executive Officer Martin Griffiths told Bloomberg:

“The short-term outlook, in the economy and politically, is obviously uncertain, and together with other factors is having an impact on travel.”

Shares in Stagecoach pushed down to their lowest level since December 2009 on the news, despite Griffiths adding that he was “confident that Virgin Trains East Coast will become profitable again from 2019 onwards”.

The figures come despite increasing calls for the re-nationalisation of the rail industry in order to combat high prices, a stance pushed by Jeremy Corbyn’s Labour party in the June general election.

Mick Cash, general secretary of the Rail, Maritime and Transport (RMT) union, said the latest figures from Stagecoach prove that re-nationalisation is the best option for British railwais.

“RMT warned that reprivatising East Coast, after it had been successfully run in the public sector following the last private failure, was a gamble doomed to failure,” he said.

“We have been proved right. This is the third private operator to run the vital East Coast inter-city routes into the ground and rather than waiting for the inevitable financial collapse, it should be brought back into public ownership immediately.”

Stagecoach shares have recovered somewhat from their lows this morning, currently trading down 8.44 percent at 156.50 (1307GMT).