Will the Stagecoach share price continue to rise?

The Stagecoach share price is up 45% in the past year. Will the stock continue to rise? Royston Roche makes a deep dive analysis of the stock.

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The Stagecoach (LSE: SGC) share price rose about 45% in the past year. However, the shares are down about 50% from their December 2019 price level. The prime reason is the disruption to the company’s services due to Covid-19. However, with reopening, this could change.

Here, I will analyse the company to see if I should add the stock to my long-term portfolio.

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Stagecoach company’s fundamentals

Stagecoach released its fiscal year 2021 results on 30 June 2021. Revenue was down 35% to £928.2m. The drop was primarily due to the lockdown. However, it was offset by new contract wins in the London area. With reopening, the company did experience some positive turnaround. For the week ending 26 June 2021, commercial sales were 68% of pre-pandemic levels. 

Stagecoach’s profit before tax fell to £24.7m from £40.6m for the previous year. The company also announced that it would not pay dividends this year. It has a net debt position of £312.6m compared to £352.1m for the previous year. This is still high in my view.

The company is targeting zero emissions for its UK bus fleet by 2035. In February, it completed one year of running two electric buses in Cambridge. In addition to low pollution, the buses have also enhanced passenger experience with a quieter and smoother journey. With global warming, investors, funds, and the general public are more environmentally conscious, which is positive for the company. It is also a key partner in UK’s first all-electric bus city, Coventry.

The Stagecoach share price – risks to consider

Stagecoach founders Sir Brian Souter and Dame Ann Gloag are expected to reduce their stake in the company to 5% from the current 27%. In my opinion, this is negative for the Stagecoach share price as the founders usually reduce the stake in a business when they are less optimistic about the company’s growth prospects.

The company’s current ratio is 0.93, which suggests that the company will face difficulty paying its current liabilities in the near term. It has long-term debt of £406.6m and pension liabilities of £263.8m. The total equity on the balance sheet is only £61m. The company got an extension to its loan repayments previously because of the lockdown. However, if the company’s financial performance does not increase, then it could find it difficult to pay its debt on time. 

The company’s plan to electrify its fleet is positive. However, it could involve capital investments. Also, it is too early to know the practicality of electric vehicles and the cost of running the vehicles. This could reduce the company’s profitability.

Final view

I believe that the Stagecoach share price might continue to rise as it will benefit from the reopening of the sectors. However, I am not yet fully convinced to buy for my long-term portfolio since I am worried about the balance sheet. So, for now, I would keep the stock on my watchlist.

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Royston Roche has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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