Insider: post-results slump is buy signal for this chief 

Progress at part of the business has slowed and the share price has hit an eight-month low, but the City still likes this former bid target. There are bets at another company that recovery is underway.

Another £75,000 of FirstGroup (LSE:FGP) shares have been bought by its chief executive after interim results saw the FTSE 250-listed stock reverse to its lowest point since March.

Graham Sutherland, who took on the role in May, said the transport group had posted a resilient performance but that ongoing driver shortages and cost pressures had slowed the pace of near-term progress in its bus division.

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Shares fell 10% after the results, leading Sutherland to make his purchase on Thursday at 93p a share. The move followed his investment worth £115,000 in August at a price of 115p, shortly after Miami-based infrastructure investor I Squared ended takeover interest.

That bid approach, which was pitched at 135p a share plus an additional sum from last year’s sale of North American operations, was rejected for significantly undervaluing prospects.

FirstGroup told investors it was cash generative and that it now had a de-risked balance sheet with strong market positions in UK bus and rail.

Shares have fallen since then, reflecting concerns over the economic outlook and October’s lower-than-expected £74 million earnout agreement from the North America exit.

Operating profit of £66.1 million for the six months to 24 September came in moderately lower than some City expectations, with a bus division surplus of £20.7 million and margin of 4.8% below broker Peel Hunt’s £28 million and 7% estimate.

The City firm said changes to a funding mechanism meant more mileage was operated than it had expected in order to stimulate the post-pandemic recovery in passenger volumes. The bus division is the second-largest regional operator in the UK, serving two-thirds of the UK’s 15 largest conurbations.

Sutherland told investors last week the division had the potential for “significant earnings growth and margin enhancement,” as the bus market returns to a more commercial model and the company realigns services to reflect changing passenger trends.

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.

It made an adjusted operating profit of £55.4 million, which compared with Peel Hunt’s £51.2 million forecast after outperformance by open access operations and the benefit of additional services.

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Liberum transport analyst Gerald Khoo cut his forecasts for the current year to reflect the slower rate of profit recovery in the bus division and made more modest revisions to 2023/24. But he remains optimistic that the division will deliver on its 10% operating margin target the following year.

Retaining his 165p price target, he said a valuation of 7.8 times 2024 earnings looked attractive.

Khoo added: “The current valuation reflects neither the scope to return cash to shareholders from a very strong balance sheet position, nor the upside from both the recovery in bus earnings and the likely pivot to industry growth on supportive government funding and policies underpinned by decarbonisation efforts.”

Peel Hunt has a “buy” recommendation and target price of 153p, while UBS has a “neutral” stance and 120p estimate.

The company is due to pay an interim dividend of 0.9p a share worth £6.7 million on 23 December, part of its policy of three times cover against its adjusted attributable profit.

Bullish talk as boss buys

The boss of Chesnara (LSE:CSN) has spent £50,000 on the company’s shares, doing so at a level 18% below where the Countrywide Assured owner traded at the start of September.

Steve Murray, who has run the life and pensions consolidator since October 2021, bought the shares on Wednesday at 266p. They finished the week at 276p, having fallen from 325p two months earlier in a sell-off driven by heightened market volatility.

The company, which administers about one million policies and recently bought Sanlam Life & Pensions in the UK, boasts uninterrupted dividend growth of 18 years. Last month it paid 8.12p a share to shareholders following a 3% increase in half-year results on 31 August.

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The interim figures saw Chesnara report a 16% decline in economic value to £526.7 million or 351p a share, some 7% below City forecasts after being impacted by the decline in equity markets and widening of credit spreads.

However, the FTSE All-Share company said it had a “strong and resilient” solvency position and substantial cash balances for future acquisitions and to support the dividend strategy.