Firstgroup vs Mobico: FTSE 250 transport giants take different roads

Two of Britain’s biggest transport operators are charting very different paths on London’s FTSE 250 index.

The stark contrast between Firstgroup and Mobico, formerly National Express, was laid bare in the two group’s most recent trading updates.

Firstgroup hiked its already bumped-up annual profit forecast, while Mobico shares cratered after it was forced to delay its full-year results, due to audit issues affecting its German rail business.

Investors will fear it is becoming something of a pattern. Back in October, a Mobico profit warning fell just a day after Firstgroup initially raised its profit guidance.

Both companies run rail and bus segments in Europe and have a major UK presence, while demand has been pretty consistent across the board. Mobico, which only operates buses and coaches in the UK, has also not had to worry about persistant rail strikes.

So why the difference?

Can’t catch a brake

Mobico re-branded last year from National Express in an attempt to reflect a push into international markets.

However costs have hampered growth since and brought it to a loss in the first half last year. Its UK bus business has had to pay out more in the form of pay, fuel, parts and services and in the USA, the problems are even worse.

The coach operator’s North American school bus segment has sucked out cash to address staff shortages and rising wages. An October decision to sell it off represents a significant attempt to reduce spending, though no deal has been completed yet.

Mobico looked to be bouncing back at the turn of the year after its largest shareholder, Spain’s Cosmen family, upped its stake.

But it was then revealed that accounting issues in the group’s German rail business, caused by the German statistics office scrapping some indices, would force a delay in the publication of its annual results. Shares promptly dropped to the bottom of the FTSE 250.

“The good news is that Germany is barely one-tenth of group sales, so the damage should be contained,” Russ Mould, investment director at AJ Bell, told City A.M.

Operating margins across the company remain fairly thin though, he added, while there is a “fair amount of debt (£1.2bn), enough to prompt management to contemplate asset disposals.”

Further down the road

As Mobico fell, Firstgroup rose. The transport giant’s double profit hike has got investors on board and its shares are trading at 12-year highs.

Firstgroup appears to be further down the road than its rival. Mobico’s move to sell assets echoes a strategy that has already worked for Firstgroup, which sold its US bus service Greyhound for £125m in 2021.

The owner of National Express looked to preserve cash in October by cutting its dividend, while Firstgroup is in the midst of a £115m share buyback programme.

And more cash means more investment in growth and expansion.

“The company is confidently seeking out new opportunities… with new services explored between London and Sheffield and an extension of services from London via Edinburgh to Glasgow,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, told City A.M.

“While Mobico is selling off its North American School bus business to help pay down debt, Firstgroup is on an acquisition journey, taking over York Pullman Bus division which offers rail replacement services, private hire and school and college transport.”

Firstgroup is firmly ahead as of today but a looming general election could prove a tide turner. Chief executive Graham Sutherland warned in November Labour’s renationalisation policy posed a “risk” to the firm.  

“We are leaning into it, we are in communications with both parties, and we are demonstrating the value we add,” he said at the time.