SCOTTISH transport company FirstGroup has lost out in the race for a London commuter franchise that it currently partially runs, after an operator majority-owned by Go-Ahead beat rivals, including Stagecoach, to the contract.

FirstGroup's performance in the latest allocation of rail franchises is being closely watched by the City as the company seeks to rebuild from a £615 million fundraising to boost its stretched finances last year.

The Aberdeen company said it was disappointed with the announcement by the Department for Transport (DFT) that it been unsuccessful in its bid for the new Thameslink, Southern and Great Northern rail franchise.

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The contract was instead awarded to Govia, 65 per cent owned by Go-Ahead, which beat four shortlisted bidders.

FirstGroup has operated the First Capital Connect franchise, on the Thameslink and Great Northern sections of the route, since 2006.

It said in that time it had seen passenger volumes rise 37 per cent to 118 million.

FirstGroup chief executive Tim O'Toole said: "I am disappointed that we will not be operating the new franchise and taking the Thameslink programme on to its next stage.

"We submitted a strong bid which would have delivered high quality services for passengers, value for taxpayers and an economic return for shareholders.

"We are tremendously proud to have operated a significant part of this network over the past eight years through our First Capital Connect franchise, and of the many improvements we have delivered during that time."

Earlier this week, Mr O'Toole warned that investors must be patient, warning that there would be a "lot of noise" during the franchising process" and that the company has to "hold our nerve and be steady".

After falling in early trading, FirstGroup's shares closed up 1.7p or 1.3 per cent at 136.5p.

Stagecoach's shares closed flat at 378.5p.

FirstGroup has been shortlisted for seven rail franchises including ScotRail, the Caledonian Sleeper and InterCity East Coast.

The company has told investors it would be happy to win two large franchises and one smaller one.

A spokesman for Perth-based Stagecoach said: "We submitted a strong, deliverable and customer-focused bid for the TSGN franchise and we are disappointed not to have won.

"We believe our proposals provided good value to the taxpayer and included clear plans to deal with the complex changes that will affect the network.

"As a matter of course, we will seek feedback from the DFT on our bid as part of our evaluation of the outcome."

It was the first competition for a rail franchise since 2012, when the Government awarded the West Coast Main Line contract to FirstGroup but was forced to cancel the deal after flaws were found in the way it handled bids.

The Thameslink contract covers rail connections between London and towns in southern England including Brighton, Portsmouth and Cambridge, plus Gatwick and Luton airports. Part of the route is also currently operated by Govia.

Govia will receive about £8.9 billion in franchise payments, which will boost Go-Ahead's profits by up to £200m over the contract's seven-year period, it told investors.

Govia, is 35 per cent owned by France's Keolis, which is 70 per cent owned by French national rail company SNCF.