What’s happening with the Stagecoach share price?

The Stagecoach share price has moved around a lot in recent days. Here our writer considers why — and what may come next.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

travel company bus greets tourists at the airport to take to the hotel

Image source: Getty Images

Sometimes I can wait ages for a bus and then suddenly there’s a flurry of action. It’s been a somewhat similar story for shareholders in Stagecoach (LSE: SGC) lately, with the shares moving up and down markedly this month. Over the past year, the Stagecoach share price has fallen 3%, at the time of writing this article yesterday.

Below I look at what’s driving the price movement – and what might come next.

Decent interim results

Yesterday, Stagecoach issued its interim results covering the six months to the end of October. These contained some good news. Revenue of £579m beat the equivalent period last year, which was heavily affected by pandemic restrictions. Pre-tax profit came in at £31m and earnings per share were 1.9p. The company is cash flow positive. It also reduced net debt from £313m to £268m.

All of that suggests to me that the business is moving in a positive direction. It also suggests that the worst of the pandemic impact may now be in Stagecoach’s rear view mirror.

However, there are still some grounds for concern that I think may be troubling investors. For example, for most of November, passenger journeys were at over 70% of the equivalent 2019 levels. But that figure has since softened, due to factors such as pandemic variant concerns. This shows that sudden demand shocks remain an ongoing risk to the company’s revenues and profits. But more worryingly, the passenger recovery of “over 70%” seems fairly weak to me. It means that around a quarter of all passenger journeys that were being taken before the pandemic have not rematerialised to date. Compare that to recovery in retail and hospitality, for example, where some operators have recovered or surpassed their 2019 levels of customer demand. It may be that there have been structural shifts in working patterns and willingness to travel on buses. That threatens both revenues and profits at Stagecoach.

Merger speculation

Another driver for movements in the share price in recent months has been speculation around a possible combination with rival National Express. The interim results were vague on this, saying that “constructive discussions are continuing with National Express Group plc on a potential combination of both groups that would deliver strong value creation for both sets of shareholders”.

That doesn’t reveal much, although it does suggest that getting a good deal for Stagecoach shareholders, not just National Express investors, could be a sticking point in the discussions. As time goes on, I detect a limited hunger to do a deal here. If that turns out to be the case and no merger materialises, it could drive the Stagecoach share price lower. But I reckon the investment case for the company doesn’t require a merger. So longer term I’m not worried if it doesn’t happen.

My next move on Stagecoach

The possibility of a takeover premium has boosted the Stagecoach share price. Yet I feel that improving demand and profitability should help to boost the company over the long term, with or without a merger. While I have concerns about the limits of demand recovery, I thought the interim results showed a company in recovery mode. If that continues for the full year, it could help support a higher share price. I will continue to hold my shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Christopher Ruane owns shares in Stagecoach. 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.

More on Investing Articles

Cheerful young businesspeople with laptop working in office
Investing Articles

5 dividend stocks with 5%+ yields I’d buy now

These dividend stocks should deliver reliable yields of between 5% and 8%, which means they appeal to Roland Head.

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

2 ‘irresistible’ FTSE stocks to buy before the market recovers!

For me, the FTSE is the most attractive index to invest in. Valuations are low and yields are high. So…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Is NIO stock a buy at $20?

NIO stock has been pretty volatile over the past few months. Here, Dylan Hood takes a look to see if…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

I’m buying more Lloyds shares at 45p! Here’s why

Lloyds shares look cheap to our writer at present. Charlie Carman outlines the factors behind his decision to invest more…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

When will the Rolls-Royce share price recover?

The Rolls-Royce share price may be down, but cash flows are surging! Zaven Boyrazian explores how long it could be…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

1 dirt-cheap FTSE 100 stock I think could TRIPLE my money!

Demand for lithium is forecast to surge by 42 times, enabling this FTSE 100 stock to potentially supercharge its profits…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »