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Government’s funding for bus services supportive but more detail needed, says Liberum

The broker noted comments from Go-Ahead regarding misalignment between current revenue and its cost base

Stagecoach Group PLC - Government’s funding for bus services supportive but more detail needed, says Liberum

Stagecoach Group PLC’s (LON:SGC) stock shot up 10% early on Tuesday after the transport firm welcomed fresh funding to boost bus services in England.

The Department for Transport has announced a further £254mln to support increased services while maintaining social distancing.

READ: Stagecoach welcomes new funding to resume services in England

Go-Ahead Group PLC (LON:GOG) and FirstGroup PLC (LON:FGP) were also on the rise, but analysts at Liberum said “the devil is in the detail (or lack thereof)” as it is not clear how the funding will be delivered and over what time period.

The broker also noted that Friday’s update by Go-Ahead “highlights the potential for mismatch between broad policy objectives and the actual outturn of their implementation”.

The FTSE 250-listed company had said financial support was “crucial” to cover the costs of essential services.

“In recent weeks we have been operating between 40% and 50% of normal scheduled mileage, carrying around 10% of usual passenger numbers, creating a misalignment between revenue and our cost base,” Go-Ahead said.

In its regional bus business, 65% of costs come from staff, half of which have been furloughed, while 30% of revenue is derived from contracts and concessionary income.

“In the vast majority of cases, local authorities across the country have continued paying for these services at pre-crisis levels,” the firm pointed out.

Quick facts: Stagecoach Group PLC

Price: 51.95 GBX

LSE:SGC
Market: LSE
Market Cap: £285.82 m
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