FirstGroup has announced the first disposal in its planned bus divestment programme in a £12 million deal with Stagecoach to offload its operations in Wigan, Greater Manchester.
But analysts raised questions about the pressures on indebted FirstGroup to sell good businesses, after Stagecoach revealed that the Wigan company last year had revenues of £13.2m and an operating profit of £1.5m. FirstGroup chief executive Tim O'Toole told the annual meeting in Aberdeen in July that all the businesses being offloaded had aggregate revenues of £140m and "zero" profits.
Gerald Khoo, analyst at Espirito Santo investment bank, said the business being sold "does not appear to be an obviously underperforming unit", with margins in line with FirstGroup's UK Bus divisional average. He went on: "We believe this raises the risk management is selling relatively good businesses to generate some momentum in its disposal programme."
Anand Date at Deutsche Bank Research said: "This is a nice deal as it gives Stagecoach more presence in the Manchester area where they are very strong." He said it was positive for FirstGroup to get a bus sale away as they were targeting £100m of cash inflow from sales this year, and were halfway through the year with far less than half the £100m completed. But it was negative "as FirstGroup has been saying it wants to sell junk businesses but this is clearly not one of them".
A FirstGroup spokesman said: "We are getting rid of businesses that are geographic orphans and this is one of them – it is a much better fit for Stagecoach in the Manchester area. It is not a signal we are changing anything in our disposal programme.
"We are still very confident we will achieve the target, we are in discussions with other parties around the country."
The two Scottish-based transport giants had agreed a far smaller deal this year in North Devon, worth just £2.8m, which Stagecoach walked away from in July when the Office of Fair Trading said it raised competition issues.
A Stagecoach spokesman said: "Wigan is a new area of operation and we don't believe there are any issues around the transaction."
The Perth-based group operates around 630 buses and employs 1850 staff in the Manchester area.
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