Analysis: Golden age of buses? Buyers hop on UK transport firms

Kinetic Engineering

15/06/2022 06:00

By Yadarisa Shabong
    LONDON, June 15 (Reuters) - Private capital has a keen eye
on British bus companies.  
    Low valuations, hopes that travellers will ditch cars, and
government incentives to invest in environmentally-friendly
vehicles are enticing buyers, analysts and investors said.
    Three out of four major London-listed bus operators have
attracted takeover interest in recent months.
    "Whatever the 2020s are called will be the golden age of
electric buses," said Hamish Mackenzie, head of infrastructure
at DWS Group  DWSG.DE , which agreed to buy StageCoach  SGC.L 
earlier this year.  urn:newsml:reuters.com:*:nL3N2VC1SU
    Britain will invest 3 billion pounds ($3.6 billion) in
policies that aim to get more people travelling by bus and to
provide incentives for operators to convert diesel buses to
electric or hydrogen-powered vehicles, it said last year.
    That political support is helping drive takeover interest,
executives say.
    StageCoach, the country's largest bus and coach operator,
was the first to agree a deal. A European infrastructure fund
managed by DWS outbid rival National Express  NEX.L  in March.
    "The transition Stagecoach is going through with regards to
the national bus strategy and investing in a new fleet of
electric buses is easier to do with a single shareholder than
with a disparate group of shareholders," said Mackenzie.
    Infrastructure funds have made plays for StageCoach,
FirstGroup  FGP.L  and Go-Ahead  GOG.L . They are looking for
alternatives to core infrastructure like toll roads, bridges and
hospitals, whose valuations surged amid competition for assets. 
    Public transport firms offer the same predictable revenues
without the hefty price tags. The businesses also offer value
for those willing to look beyond the short term. Investments
made now in new fleet could reap rewards in years to come. 
    "The favourable policy environment, including increasingly a
bus-friendly UK, is clearly an attraction for long-term
investors," said RBC Capital analyst Ruairi Cullinane. 
    Valuations are also favorable.
    Shares in StageCoach and Go-Ahead are down by more than 35%
each since the start of 2020, while FirstGroup, supported by its
recent bid approach, is up by about 6% in the same period.   
    StageCoach has, in recent years, exited its international
operations and pulled out of rail, making it a pure play UK bus
operator.
    FirstGroup has also become a UK-focused company in the past
year after selling its North American bus assets to EQT
Infrastructure and offloading its iconic Greyhound buses.
    The owner of First Bus, the second largest regional bus
operator in the UK, rejected a takeover proposal from global
infrastructure investment firm I Squared Capital last week that
would have valued it at about 1.2 billion pounds.
    
    JUMPING ON THE BUS
    The supportive government policy and incentives to
decarbonise are a "very powerful" narrative for investors,
FirstGroup Chief Executive Graham Sutherland said on Tuesday. 
    Increasing bus usage by younger people should also see sales
increase over time, he added.
    "We currently believe that we are investing into the cycle
and obviously others are beginning to look at the sector and see
the value that we do," said Sutherland. 
    Go-Ahead, which runs more than 6,000 buses in England,
became the latest takeover target this week after it revealed it
had two potential buyers. 
    The firm agreed to a takeover by a consortium of
Australia-based bus company Kinetic and Spain-based transport
infrastructure management firm Globalvia Inversiones. Kelsian,
another Australia-based transport service provider, has said it
may make a rival bid.
    Globalvia is responding to changes in the way young people
travel, with fewer opting to own a car, its chief executive
Javier Perez said Tuesday.
    "We are anticipating this change by jumping into the bus
business," he told reporters.
    National Express is the only London-listed public transport
operator that has not seen a buyout interest so far this year. 
    "There may be slightly less enthusiasm for coach operator
National Express, given that it's recently signaled that it will
have to keep prices low to lure more passengers back to seats,"
said Hargreaves Lansdown analyst Susannah Streeter.
    ($1 = 0.8233 pounds)

 (Reporting by Matt Scuffham
Editing by Mark Potter)
 ((matthew.scuffham@thomsonreuters.com; +1-332 219 1494; Reuters
Messaging: matthew.scuffham.reuters.com@reuters.net))