Recent pressure from activist investors has put the chance of a break up at FirstGroup PLC (LON:FGP) at around 50/50, according to analysts at RBC.
However, in a note on Tuesday the bank upgraded the stock to ‘outperform’ from ‘sector perform’, saying disposals at the FTSE 250 transport operator could generate “considerable value”.
READ: Everybody off: activist calls for FirstGroup board to step down
On Monday, US-based hedge fund Coast Capital Management (CCM), which last week upped the stake held by its Hermes-Golden vehicle to 9.77%, proposed ousting six of the company’s eleven board members including current chief executive Matthew Gregory and chairman Wolfhart Hauser.
James Rasteh, a partner at the New York-based hedge fund, told The Sunday Times that the current directors ranged from “shades of super destructive to extraordinarily under-qualified”. He wants shareholders to replace the board with seven of Coast’s nominees, including former Tory transport minister Steve Norris as chairman.
CCM’s stance, alongside an increasing amount of the company’s shares being controlled by institutional investors (63.1%), was also increasing the chance of a change occurring, RBC said.
Analysts also upped their target price to 160p from 95p, adding that if the pressure from activist investors continued they saw scope for the shares to rise to 245p.
However, if no change occurred RBC said the shares could fall back to below 80p if the group “overbids for another loss-making rail contract” in addition to its South Western Railway and TransPennine Express franchises, or if CCM decided to offload its now sizeable stake in the business.
The bullish stance helped push the shares 1.9% higher to 117.4p in late-morning.