Last time I looked at Stagecoach Group (LSE: SGC), it was offering the most generous yield on the FTSE 250 at an eye-catching 8.78%. You will not need telling that such extreme generosity is normally a dangerous sign, and the group remains troubled today.
Stagecoach, which runs trains, buses, trams and express coaches in the UK, US and Canada, has had a bumpy journey in recent years, but today is back on track. The stock is up around 2% today on publication of a broadly positive trading statement where management declared itself “pleased to have made a good start to the year” with its adjusted earnings per share (EPS) forecasts broadly unchanged.
The £913m company isn’t firing on all cylinders, though. Year-to-date like-for-like revenues rose 3.2% in the 16 weeks to 18 August in its UK Bus (regional operations) division, 2.1% in UK Rail (excluding Virgin Trains East Coast), and 5.3% in Virgin Rail Group. But other parts of the business have stalled. UK Bus (London) revenues were down 2.2%, while North America was down 3.8% in the four months to 31 August.
Stagecoach has lost the South West and East Coast rail franchises in the past two years and missed out on some recent London bus tenders. Today management admitted it was “disappointed” with its performance on tenders for Transport for London contracts, which will accelerate the rate of revenue decline later this year.
The stock is nonetheless up 18% in three months, but trading at 8.9 times earnings it still looks cheap. The dividend is less eye-catching than before but still decent at 5.2%, with cover of 2.2. Earnings forecasts worry me though, with an expected 18% drop in the year to 30 April 2019, and 9% the year after. Yes it looks cheap, but its hardly an unmissable bargain.
Paving and flooring products business Marshalls (LSE: MSLH) saw its share price spike almost 15% to 483p in mid-August after it reported a 12% rise in interim pre-tax profits to £32.5m, despite the ‘Beast from the East’ taking a £9m bite out of its sales.
Revenues also grew 12% to £244.3m amid strong recent trading and healthy order intakes, putting it on course to meet full-year expectations. Investors reaped the rewards with an 18% increase in the interim dividend to 4p a share, which means the stock now offers a steady forecast yield of 3.3%, covered 1.7 times.
This £877m company has done well to fight both Brexit and the Beast, although its share price has retraced most of last month’s spike. It isn’t cheap, trading at a forecast 17.6 times earnings but earnings growth looks healthy with EPS forecast to jump 14% in calendar year 2018, and another 7% in 2019.
That does mark a slowdown on recent years. EPS growth was 46% in 2014 and 41% in 2015, so we may not see a repeat of the recent strong share price performance, which saw the stock grow 145% over five years. My Foolish colleague Royston Wild remains a major fan, praising the company for posting strong growth in the face of wider economic fears. Today it is cheaper than when he tipped it, and well worth a look.
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harveyj 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.