Insider: FTSE 250 boss backs shares to pick up speed

The FTSE 250-listed shares reversed last week when a US bidder walked away, but the boss of this transport giant is optimistic after placing a big bet on shares.

The new boss of FirstGroup (LSE:FGP) has spent £115,000 on the company’s shares as he sets about showing that the transport group was right to reject a US-based takeover approach.

Graham Sutherland was only 10 days into his new job when the Aberdeen-based company disclosed an unsolicited proposal from Miami-based infrastructure investor I Squared.

The move in May was pitched at 118p a share with the potential for an additional 45.6p relating to a future earn out agreement on last year’s sale of US division First Transit and the net proceeds from legacy Greyhound coach assets.

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A final proposal of 135p a share plus contingent value from the US First Transit earnout was put to the board on Monday last week and subsequently rejected on the grounds that it significantly undervalued the company’s continuing operations and future prospects.

Shares closed the week back at 108.1p after I Squared walked away in light of the rejection, but this is still significantly higher than the level of 90p seen in March.

A statement from FirstGroup backed its standalone prospects under Sutherland, pointing out that it was now “a cash-generative, well capitalised business” with a de-risked balance sheet and strong positions in the UK bus and rail markets.

Its First Bus division is the second-largest regional operator in the UK with more than 900,000 passenger journeys a day recorded in 2021-22. It continues to progress towards its 10% margin target and looks well placed to benefit from the National Bus Strategy.

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On Friday, the government announced up to £130 million of funding to support bus services across England in the six months to March. It also pledged to invest £3 billion by 2025, including more than £1 billion to improve fares, services and infrastructure and a further £525 million for zero-emission buses.

FirstGroup’s rail division runs four UK train operating companies - Avanti West Coast, Great Western Railway, South Western Railway and TransPennine Express - as well as two open access passenger rail services, Hull Trains and Lumo. 

FirstGroup told investors last week that it is well placed as the Department of Transport moves to a lower risk, long-term model of rail operations.

Despite uncertainty around the pace of pandemic recovery and economic backdrop, the group said it continued to expect significant further progress in the current financial year.

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Liberum analyst Gerald Khoo believes the shares are worth 180p after trimming his target price from 190p last week. He said: “We see clear upside potential in FirstGroup from crystallising incremental sources of value, completing the turnaround in UK Bus, and demonstrating reliable earnings from new-style Rail contracts.”

Sutherland, who is the former chief executive of telecoms company KCOM and has held senior roles at BT Group, bought his shares on Wednesday at 115p. Non-executive directors Peter Lynas and Sally Cabrini also made investments worth £23,045 and £11,482 respectively at prices of 115.2p and 114.82p.

AIM firm’s record order book

A profit warning at Gooch & Housego (LSE:GHH) has been followed by a flurry of boardroom share purchases after the photonics firm offset the disappointment with a record order book.

The downgrade, which sent shares 20% lower, was caused by labour and supply chain difficulties as the company battles to ramp up capacity in order to meet demand.

Chair Gary Bullard led the buying with an investment worth £28,485 and a person closely associated with him picked up stock worth £26,200, both at prices of 655p.

AIM-listed Gooch had been at 824p prior to Wednesday’s trading update, when it reported strong and improving levels of demand across its divisions spanning industrial lasers, telecoms, aerospace and defence and life sciences.

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At the end of July, the order book stood at a record £140.6 million for growth of 43.9% over a year earlier. However, the Somerset-based company said highly competitive labour markets in the UK and US and supply chain shortages have hampered progress.

The longer-than-usual time to ramp up capacity and higher level of investment to meet the increased order book mean that adjusted profit is now forecast to be around £3.5 million lower than management’s previous expectations.

The company still expects to pay a dividend of between 12.4p and 12.7p for the year to September, up from 12.2p in a reflection of the positive longer-term outlook.

It also revealed that Mark Webster is retiring after eight years as chief executive and will be succeeded by Charlie Peppiatt, who was recently executive vice president at TT Electronics.

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Peel Hunt lowered its 2023 profits estimate by £3 million to £12.5 million but remains positive on the long-term outlook through a “buy” recommendation and 1,000p price target.

The broker said: “The current demand levels and growing order book reflect the strength of the offer and the strength of the company’s core end markets, and the issues the company is facing are short term in nature.

“Gooch has a very strong technological history and offering, and is an attractive global asset.”

Non-executive director Brian Phillipson, who has held senior roles at BAE Systems, also spent £10,000 on shares at 663p, while a person associated with company secretary Gareth Crowe made an investment worth £5,000.