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FirstGroup’s West Coast win “a mixed blessing”, says Liberum

The broker warned that investors could react to the new award with scepticism due to the firm’s “recent poor track record in rail franchising”

FirstGroup - FirstGroup’s West Coast win “a mixed blessing”, says Liberum
FirstGroup in its last set of results wrote down £102mln from its "onerous" South Western Railway franchise

Control of the West Coast rail franchise may be a “mixed blessing” for FirstGroup PLC (LON:FGP) according to analysts at Liberum.

In a note on Thursday where the broker upped its target price for the FTSE 250 transport operator to 140p from 130p and retained its ‘buy’ rating, analysts said while revenue growth assumptions from the franchise weren’t “stretching” and management had implied margins of between 3-4%, investors could react with scepticism due to the firm’s “recent poor track record in rail franchising”.

READ: FirstGroup tracks upwards as it appoints former Arriva boss as new chairman

FirstGroup was awarded the West Coast franchise on Wednesday as the major partner in a 70:30 joint venture (JV) with Italian state-backed rail operator Trenitalia.

The JV will run the service in an initial phase from 8 December to March 2026, after which it will also take responsibility for running the High Speed 2 (HS2) rail line between London and Birmingham that is currently under construction.

READ: FirstGroup joint venture awarded West Coast rail franchise

Investors may have some justification for approaching First’s latest win with trepidation, particularly following the company’s full-year results in May when it wrote off £102.1mln from what it said was its “onerous” South Western Railway franchise, which provides services from Waterloo to the counties of Surrey, Hampshire and Dorset.

 The group has also lost around £106mln from its TransPennine Express contract, which runs trains between the major cities in northern England and Scotland including Manchester, Leeds, Edinburgh and Glasgow.

In late-morning trading, FirstGroup’s shares were 5.7% higher at 121.1p.

Quick facts: FirstGroup

Price: £1.30

Market: LSE
Market Cap: £1.58 billion
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