First Group's value takes a dive

[Tony]

Full story at
http://news.sky.com/story/1093313/firstgroup-shares-plunge-by-more-than-30-percent

[winston]

First Group could now become attract a takeover approach from a private equity group in a bid to break the group up & sell it off in smaller pieces/units, similar to what CVC capital partners/The Cosmen's were intending to do with NX when they were also saddled with high debts/underperforming businesses and contemplating a rights issue, as with NX, the value of the individual business units sold separately would be worth much more than as part of a group. Currently the group is valued at £2.8 Billion current share price plus debt, I don't think there are any transport groups that could mount a takeover of that size, but I would expect there to plenty of willing buyers for parts of First Group if the above occurred....... time will tell

Also of note, of the £615 million proposing to be raised via a rights issue, only £215 million is being used to pay down actual debt, the remaining £370 Million is be used towards First Groups 4 year £1.6 Billion investment plan across all its divisions, £340 Million is due to be invested in the group before 31st March 2014

[Justin Tyme]

A huge debt and underinvestment problems - First certainly are in a bad place.  It's even clearer now why First have struggled to improved its bus operations, even under Giles Fearnley - the funds aren't there.

Will the new share issue turn First around or is it a last throw of the dice?  If it works, First could enter a golden age.  If not, it's surely curtains for First's Chief Exec Tim O'Toole and something really big will probably have to go, such as Greyhound USA.

[winston]

Will the new share issue turn First around or is it a last throw of the dice?  If it works, First could enter a golden age.  If not, it's surely curtains for First's Chief Exec Tim O'Toole and something really big will probably have to go, such as Greyhound USA.

When First concluded the Laidlaw deal, many city analysts were under the impression that First would sell off Greyhound back then due to being noncore and pay down some of the debt it had accumulated, one of the reports following Monday's announcement suggested that Stagecoach had offered Moir Lockhead £750 million for Greyhound, but he refused point blank to sell

First have got a long hard slog ahead to turn the groups fortunes around, they have a much bigger task on their hands than Dean Finch took on to turnaround NX Group fortunes........ In UK bus First need to Giles some serious wedge and autonomy to work some of his past magic

Possible changes to rail franchising rules & the threat of First Group credit rating being downgraded to junk appear to be the key drivers for the rights issue
http://www.ft.com/cms/s/0/de8114a8-c237-11e2-8992-00144feab7de.html#axzz2TyJfMs00

[winston]

This article sums First Groups problems up pretty well

http://www.heraldscotland.com/business/opinion/is-there-any-way-back-for-firstgroup.2013056283

[Kevin_Brum12]

Although a rights issue has been proposed, I wonder if as is suggested a break up of First will take place.

First have got a mixture of profitable businesses with potential and basket cases.  The plums (and if I was in National Express HQ I would be sizing these up) would be the Manchester and Sheffield operations.  Both large businesses in cities with a growing young population with an income meaning they are more likely to use buses, both potential for huge revenue, and because there is competition from another member of the big five in Manchester and South Yorkshire (i.e. Stagecoach) there should be no grounds at all for the OFT getting their mitts involved.  (Though of course because of the way the industry was privatised in the PTE areas there are very few corridors in Manchester and Sheffield where First and Stagecoach compete head to head.)

First Eastern Counties and the more peripheral operations might attract the interest of smaller operators and groups, but here the OFT would probably intervene.

Basket cases include the Greyhound coach business, Worcester, Northampton, Berkshire, York and Edinburgh.  Suspect that local managers would be encouraged to MBO them out which would have the advantage of a local team giving focus on the business and making decisions more nimbly than they can do under the current regime - though  Greyhound, Northampton and Edinburgh would probably close.

[winston]

Although a rights issue has been proposed, I wonder if as is suggested a break up of First will take place.

First have got a mixture of profitable businesses with potential and basket cases.  The plums (and if I was in National Express HQ I would be sizing these up) would be the Manchester and Sheffield operations.  Both large businesses in cities with a growing young population with an income meaning they are more likely to use buses, both potential for huge revenue, and because there is competition from another member of the big five in Manchester and South Yorkshire (i.e. Stagecoach) there should be no grounds at all for the OFT getting their mitts involved.  (Though of course because of the way the industry was privatised in the PTE areas there are very few corridors in Manchester and Sheffield where First and Stagecoach compete head to head.)

First Eastern Counties and the more peripheral operations might attract the interest of smaller operators and groups, but here the OFT would probably intervene.

Basket cases include the Greyhound coach business, Worcester, Northampton, Berkshire, York and Edinburgh.  Suspect that local managers would be encouraged to MBO them out which would have the advantage of a local team giving focus on the business and making decisions more nimbly than they can do under the current regime - though  Greyhound, Northampton and Edinburgh would probably close.

The plums (and if I was in National Express HQ I would be sizing these up) - Don't forget West Yorkshire, Bristol & Glasgow, South Yorkshire hasn't been doing very well until First's recently slashed fares in Sheffield due to Stagecoach wiping the floor with them.....

Basket cases - All the South Coast & overnight Scotland - London Greyhound UK services have already been withdrawn, only the former First Cymru 100 shuttle service is now branded as Greyhound, Worcester is a profitable business definitely not a basket case, I don't think Berkshire can be classed as a basket case either, as it once earn't the highest percentage profit margins within First, I think its still up there now. I doubt York is a basket case as First West Yorkshire is currently the most profitable op with First Group UK bus. Most of the other poor performing ops which could be classed as basket cases would no doubt do much better under different ownership.

I've love to see NX grow its UK bus division, but unless it merges with another one of the big groups or First Group did get broken up its unlikely to happen on any scale. Dean Finch is former First man so should know the potential of each business, but he has also stated he doesn't intend to make any big acquisitions instead focusing on capital-light growth opportunities through contract wins / new start-ups such as city2city in Germany etc

[winston]

And First Groups share price is still diving.......

The ex Rights price was thought to be 140p / share, the shares tumbled another 7.8% and have now gone under that price to close @ 134.6p

[Justin Tyme]

It will be for the City to decide if the recovery programme will work.  I hope so, but it will be a long haul at best.

One yardstick we could use to decide whether an area is a basket case is: "Could Stagecoach make a success of this operation?"  With investment, I think the answer in most cases is yes.  As far as Worcester is concerned, I agree with Winston that it's a good area.

[winston]

One yardstick we could use to decide whether an area is a basket case is: "Could Stagecoach make a success of this operation?"  With investment, I think the answer in most cases is yes.  As far as Worcester is concerned, I agree with Winston that it's a good area.

First Northampton is continually described as a basket case, yet Stagecoach obviously make money there, have expanded their operation significantly at the expense of First and invest in new vehicles year on year. The poor performing operations are only 'basket cases' because they are owned by First, I think Stagecoach could expand Devon & Cornwall, bring Edinburgh back in to profitability etc

[winston]

And First Groups share price is still diving.......

The ex Rights price was thought to be 140p / share, the shares tumbled another 7.8% and have now gone under that price to close @ 134.6p

First Group shares down another 5.3% today to close at 127.4p, Market Cap now £614 Million

[Bob]

What about potteries? Do they do well? Pretty much the dominant operator there

[Tony]

And First Groups share price is still diving.......

The ex Rights price was thought to be 140p / share, the shares tumbled another 7.8% and have now gone under that price to close @ 134.6p

First Group shares down another 5.3% today to close at 127.4p, Market Cap now £614 Million

now below £1 - I wonder if this has anything to do with it?
http://www.rmt.org.uk/Templates/Internal.asp?NodeID=174667&int1stParentNodeID=89732

Directly operated railways getting ready to take over the FGW rail franchise if needed

[winston]

And First Groups share price is still diving.......

The ex Rights price was thought to be 140p / share, the shares tumbled another 7.8% and have now gone under that price to close @ 134.6p

First Group shares down another 5.3% today to close at 127.4p, Market Cap now £614 Million

now below £1 - I wonder if this has anything to do with it?
http://www.rmt.org.uk/Templates/Internal.asp?NodeID=174667&int1stParentNodeID=89732

Directly operated railways getting ready to take over the FGW rail franchise if needed

It certainly won't help the situation if First do not get a FGW extension, unless First Group are demanding too much money to continue running the franchise. I was under the impression that First were considering not taking up the option to continue running the FGW franchise on its current terms and effectively handing back the keys early prior to the cancellation of the WCML contract.

The main reason for yesterday's 20% fall in the First share price, was that the ordinary shares went ex rights on Tue morning i.e. people buying Tuesday onwards were no longer entitle to buy the rights shares at 85p and also the rights shares became tradable from the same day

[winston]

First Group shares continue to head south closing today at 93.7p

Mkt Cap now £1.129 Billion with new shares in issue

NX are close behind, now valued at £1.108 Billion