FirstGroup is what happens when bosses manage companies like fund managers. They buy growth at high prices.
That is how a midsized UK company ended up with such a bizarre bundle of transatlantic activities; from the famous Greyhound coaches that criss-cross America to the 7.45 South West train service that is bound from Waterloo.
Long under fire for its absence of synergies and innate complexity, that muddled model has finally been poleaxed. The new chief executive, Matthew Gregory, has announced plans to sell the Greyhound business, to “separate” the UK bus operations and conceivably to run down the British rail side. What will remain is a US transportation business centred on running yellow school buses — an odd asset for a UK listed company to own but, well, ho hum.
Gamely, Mr Gregory suggests this is not a capitulation to Coast Capital, a hedge fund that bought a 10 per cent stake and agitated for a break-up. But the differences are mainly ones of speed, not fundamental direction.
Dismantling the group may lift some of the misery that has hung over the shares since First acquired Greyhound with the $3.6bn (£2bn) purchase of Laidlaw in 2007. Despite a slight bounce on Thursday, the stock is down 80 per cent over that time.
But investors should not expect a financial bonanza. Greyhound has been squeezed by customers switching from road transport to low-cost flights. It is worth a fraction of the $750m Brian Souter of Stagecoach once offered. The UK bus operation is still recovering from errors that led the group to push up fares excessively and cut services until customers went Awol. And rail is little better: dogged by political uncertainty and signs that passengers are again being priced off the railways. Its run-off value may be vestigial.
Sadly the same cannot be said for First’s pension fund liabilities. These are all too real; the UK buses alone have an actuarial liability of £390m were they all to be crystallised, although Mr Gregory hopes to arrange the restructuring to minimise that cost.
Investors may have imposed some focus on this unruly company. But they might also reflect on their role in creating the sprawl; encouraging bosses to behave like fund managers, buying sexy companies at high prices. Chasing the stock market is fundamentally a fool’s errand. It runs the risk of continually buying high and selling low — a sure-fire way over time to destroy value. Better to get managers to focus on the quotidian task of making the most of what they have.
Swiss watch clocking
A ticker with a Rolex label and a high-street price tag might make savvy shoppers wary it is a knock-off.
Not so buyers of Watches of Switzerland, ticker Wosg, which floated on Thursday. Shares in the luxury timepiece seller were priced to go at 270p or a bit over 11 times current earnings. JD Sports Fashion, flogger of Nike trainers and athleisure ephemera, is valued at nearer 20 times historic earnings and 16 times forecasts. Investors thought 270p or £650m for WoS was a bargain, pushing the shares above 300p.
The high-street price tag might be fair. WoS’s operating margins at 8 or so per cent are on a par with JD Sports and lower than WH Smith. Like JD, WoS is a distributor, not a manufacturer. Powerful brand owners control the sales process, prices and margins. Rolex, which alone accounts for half of WoS revenues, prohibits online sales of its products.
The risk is in chasing the shares higher. WoS has a glossy and expensive store estate to maintain, and plans to expand in the US and UK just when the high streets are emptying. The group expects to spend at least £30m a year until 2022.
And buyout house Apollo will no doubt look to offload more shares. It has so far sold about a third of its holding and has twice as much to go. Watch collectors have plenty of time to pick up a bargain.
JD: bendy not trendy
Investors have tolerated JD Sports Fashion’s idiosyncratic take on governance. But the athleisure group should tread carefully.
Remuneration committee chair Andrew Leslie has been a director since May 2010. The JD board knows Mr Leslie is up against the nine-year limit for independent non-executive directors, but declares it is “satisfied” he is “sufficiently independent and effective”. Does that mean sufficiently to push through an awkward bonus for Peter Cowgill, JD’s executive chairman since 2004? JD wants to pay Mr Cowgill £6m by 2021 regardless of group performance. In the remuneration report, Mr Leslie gushes the award is justified because performance has been “stellar”, “outstanding” and “exceptional”. Inserting hard targets would be better proof of Mr Leslie’s independence.
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