When the stock market correction occurred in March, many stocks plummeted and First Group (LSE:FGP) was no different. I can see that the First Group share price has steadily rallied since then. Should I buy the shares for my holdings?
Bus and rail operator
As a quick reminder, First Group is one of the largest transport providers in the UK, with operations in North America too. It employs over 30,000 people in the UK alone to support its operations that carry 880,000 passengers up and down the country via its bus and rail offerings each day.
So what’s the current state of the First Group share price? Well, as I write, the shares are trading for 132p. At this time last year, the stock was trading for 85p, which is a 55% return over a 12-month period. More recently, the share price dropped to 88p in the first week of March. This means they have risen 50% to current levels in approximately five months.
Risks to note
Current macroeconomic headwinds such as soaring inflation, rising costs, and labour shortages in the travel sector could have a material impact on First’s performance and returns.
Next, First Group is currently at the mercy of potential industrial action here in the UK due to disputes over wages. This could see operations affected, as well as its balance sheet if it increases wages as trade unions are demanding. This is a key potential development I will keep an eye on.
The bull case and what I’m doing now
One of the biggest advantages that First Group has compared to competitors, and one of the things I like about it best, is its integral position in the UK’s infrastructure. It possesses a wide network of operations across bus and rail, and these operations play a vital part in getting people from A to B.
Next, First Group’s recent performance has been positive, although I do understand past performance is not a guarantee of the future. Before the pandemic, the business was thriving. Nearly two years of disruption hurt its balance sheet and investment viability. For the full year ended 26 March 2022, it reported that net debt had decreased, it sold some of its North American operations to streamline the business and return money to shareholders, and it continues to focus on cutting carbon emissions in its fleet. More tellingly, passenger numbers continue to creep up towards pre-pandemic levels.
Finally, First Group announced that it would pay a small dividend based on 2022 results. The dividend yield is less than 1%. However, I am buoyed by any dividend due to the position the company found itself in just two years ago at the height of the pandemic. Of course, dividends are never guaranteed and can be cancelled.
Overall, I like First Group shares and would buy the shares for my holdings. Based on recent results, I can understand why the First Group share price rallied after the market dip in March. Its position in the UK transport network, coupled with its profile and presence, make it an attractive proposition for me.
