FirstGroup (LSE: FGP) shares have been on fire this year. In fact, after rising 61%, they’re one of the strongest performers in the whole FTSE 250.
However, the share price is down 5.4% today (23 November) to 165p after the British transport operator released its first-half earnings report.
Is it worth picking up a few shares in my ISA for 2024 and beyond? Let’s take a look.
A big rebound
The first thing to note is that the stock has performed incredibly strongly over the past three-and-a-bit years. Indeed, since hitting an all-time low of 32p in July 2020, it’s up a jaw-dropping 415%.
The stock has clearly been one of the major beneficiaries of the normalisation of travel following the pandemic. Perhaps this isn’t surprising. After all, the company’s First Bus business is the second largest regional bus operator in the UK, carrying more than a million passengers a day.
Meanwhile, its First Rail division is Britain’s largest rail operator, with brands like Avanti West Coast, GWR, and SWR.
Strong H1 results
In the 27 weeks to 30 September, year-on-year revenue was basically flat at £2.2bn. However, group adjusted operating profit increased to £100.6m from £66.1m. Adjusted earnings per share (EPS) reached 8.1p, a significant increase from 4.6p.
An interim dividend of 1.5p a share was declared, up from 0.9p. Plus, around £67m has been returned to shareholders via its share buyback programme, with about £75m remaining.
Yet the company booked a statutory pre-tax loss of £68.4m due to charges incurred from the termination of its participation in two First Bus local government pension schemes. It says this action will result in annualised cost savings of about £2m-£3m.
Looking ahead, the group’s full-year outlook remains in line with expectations. It expects positive free cash generation after capital expenditure and shareholder returns, resulting in an adjusted net cash position of £40m-£50m.
This is despite the “ongoing challenging economic and industrial relations environment“. The latter refers to long-running disputes over pay and conditions.
Recently, the train drivers’ union ASLEF announced further rail strikes in the run-up to Christmas. So this could still be a risk to profits moving forward.
Electrification of bus fleet
The company has committed to running a zero-emission bus feet by 2035 and helping the government remove all diesel-only trains from service by 2040.
On this, it’s forming a £100m joint venture with Hitachi for the leasing of up to 1,000 electric bus batteries.
It’s on track to have almost 15% of its bus fleet at zero emissions while operating four fully electric depots in England by March 2024.
Should I invest now?
While the company is improving its profitability and making admirable progress towards decarbonising its operations, I do worry about top-line growth. It hasn’t risen meaningfully in many years and now seems stuck around the £4bn annual mark.
This is understandable, given that buses and trains are hardly a growth market.
But I also think that a new government could nationalise — or make other changes to — huge swathes of public transport. In October, Labour committed again to radically overhauling the rail system if it wins the next general election.
Given this issue, as well as the ongoing strikes and low revenue growth, I’d rather invest in other UK shares right now.
