PERTH-based Stagecoach has extended its lead over Aberdeen's FirstGroup as Scotland's largest transport group by market value after its shares rose on a trading update that showed strong growth in its rail business.

Stagecoach's shares put on 6.3p, a 2.4% gain, to close at 274.7p as its train operation bounced back from last year when it was hit by snow.

FirstGroup started 2012 as the larger of the two with a market capitalisation of £1.63 billion, compared with £1.57bn for Stagecoach.

However, since then FirstGroup has seen its market value cut by £207 million to £1.42bn. This compares to its debt pile of around £2.1bn.

After yesterday's gain Stagecoach is now worth £1.58bn.

Stagecoach, whose chief executive is Sir Brian Souter, said Virgin Rail, a joint venture in which it owns a 49%, is "progressing its bid" to retain the West Coast Trains rail franchise which was put out to tender last month.

FirstGroup is also on the four-strong shortlist for the line. Like-for-like revenue at Stagecoach's rail business, which includes London commuter franchise South West Trains, grew 9.5% in the 40 weeks to February 5.

Virgin Rail Group achieved an 8.9% jump in like-for-like revenue during the same time period.

Meanwhile, sales at Stagecoach's bus business were up 3%. Its US coaches operation posted 13.3% growth.

Investec analyst John Lawson said: "While adverse weather in the prior year flattered the like-for-like figures to some extent, these are still positive figures with good growth despite the weak macro-backdrop in the UK."

Gert Zonneveld at rival stockbrokers Panmure Gordon added: "The outlook for Stagecoach remains positive.

"The prospects for long-term growth in passenger transport are good, given the rising environmental concerns, increasing road congestion and higher motoring costs."

Meanwhile, a hard-hitting research note published yesterday by Douglas McNeill, analyst at Charles Stanley Securities, warned that FirstGroup's strategy "is not working".

"Numerous problems are apparent," he wrote. "Capital expenditure has been held below depreciation, suggesting the existence of an investment backlog that's going to have to be made good at some point.

"The sustainability of the dividend is in doubt. A £300m bond refinancing is due in little more than a year. And the finance directorship has been vacant since November."

He said that it is also possible that FirstGroup could launch a rights issue of as much as £500m in order to pay down debt.

However, analysts at RBC Capital Markets published a note earlier this week arguing that FirstGroup has no short-term need for new equity.