FirstGroup announced that it has divested three properties for total gross proceeds of $137 million or about GBP102 million, as part of its plan to rationalise and cut costs at its embattled Greyhound bus service business in the US.
FirstGroup (FGP) said that the largest property which is Greyhound’s oversized garage and customer terminal facility in the downtown arts district of Los Angeles, California was sold to a subsidiary of Prologis, Inc.
Under the terms of the agreement, Greyhound will be paid net $88 million in cash and will lease back the facility from Prologis for two years, during which time Greyhound will complete the moves of its terminal to a more convenient location and of its garage operations to a better-sized site elsewhere. The Los Angeles site had a book value of $11 million as of September 30.
The British bus and rail transport operator said that the other two property disposals are facilities located in Denver, Colorado, sold for net proceeds of $37 million, and in Ottawa, Ontario, divested for net proceeds of $7 million.
As of September 30, all three properties had a book value of $24 million. FirstGroup disclosed that it booked a profit of about $100 million from the sale of the transactions net of leaseback, property tax and selling costs. The cash proceeds from the disposals will be used for general corporate purposes.
FirstGroup is one of the largest bus companies in the UK, with 1.6 million passengers per day, serving two thirds of the 15 largest conurbations in the country. The company calls itself the largest provider of home-to-school student transportation in North America, with a fleet of 43,000 yellow school buses – twice the size of the next largest competitor. In addition, its Greyhound bus service is the only nationwide operator of scheduled intercity coaches, with a network of 2,400 destinations across North America.
FirstGroup has already exited six smaller locations of its Greyhound property portfolio in the first half of the financial year. A number of other property sales are underway, the company said.
Shares of FirstGroup plunged more than 40% this year as its rail and bus businesses were hit by the stringent pandemic-led restrictions on travel. Looking ahead, the average price target stands at 75.20p and implies 1.6% upside potential over the coming 12 months.
In a bullish note, Canaccord analyst Gert Zonneveld on Dec. 18 lifted the stock’s price target to 85p from 50p and reiterated a Buy rating, as he expects demand to return to pre-Covid levels once the crisis is under control.
“Even though the near-term outlook remains challenging, trading conditions should improve next year as vaccination programmes are rolled out,” Zonnevold wrote in a note to investors. “With vaccination programmes being rolled out on both sides of the Atlantic, trading conditions should improve considerably during FY2022 and hopefully (largely) return to normal by FY2023.”
Overall, the stock scores a cautiously optimistic Moderate Buy analyst consensus based on 3 Buys and 2 Holds. (See FGP stock analysis on TipRanks)
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