FirstGroup (LSE: FGP) looked like a FTSE 250 growth darling, gaining 25% so far in 2025 — at least until close on Tuesday (17 November).
Then the transport company released first-half results on Wednesday and the FirstGroup share price slumped 14% in morning trading.
Optimism had been high after June’s FY results gave the share price a boost. So what went wrong? And do we now have a buying opportunity?
First half
Results for the half came in ahead of expectations, boosted by acquisitions. Adjusted operating profit reached £103.6m, up from £100.8m in the same period last year. Adjusted earnings per share (EPS) rose 16%. And the interim dividend is up 29%.
But losing the South Western Railway contract took the shine off an otherwise solid half. The company said: “For FY 2026, we anticipate First Rail’s adjusted revenue and adjusted operating profit will be marginally lower than FY 2025.”
Overall, guidance suggests modest adjusted EPS growth for the full year, and “to then at least maintain adjusted EPS in FY 2027“. That doesn’t sound too bad. But I can understand why shareholders hoping the company’s ongoing turnaround would lead to further growth in the next couple of years.
Cracking five years
The refocus really has been impressive. Selling off US operations helped tackle debt. And 2024’s loss per share turned into an expectations-beating profit in 2025 after higher passenger volumes.
I’m really not surprised by the FirstGroup share price soaring 230% over the past five years. Well, up until this latest setback.
But even after the dip, we’re still looking at a five-year gain of 170%. And the shares are still ahead of the FTSE 250 year to date, though well down from August’s 52-week peak of 240.4p.
What next?
I do think growth investors might have got a bit ahead of reality earlier in the year. After all, FirstGroup is in the business of moving people from place to place. And the supply of people wanting to be moved is extremely limited. So we really can’t expect much in the way of long-term passenger volume growth.
Efficiencies, cost control, and improving margins are helping. And I do see room for further growth there. But again, the scope has to be limited — by competition for one thing, though regional franchises help offset that.
What I see is a new-look FirstGroup that’s probably close to a new level of stability. But I don’t see a lot the company can do to push earnings too much further.
What to do?
That level currently puts the shares on price-to-earnings (P/E) multiples of around 10 for the next few years — which I don’t think is overpriced. Dividend yields look around the 4% mark.
Being in a government-regulated industry does bring risk. But it can also mean a degree of stability. Against that background, I reckon FirstGroup is definitely worth considering as a steady income stock. In the short term however, disappointed growth investors could put more pressure on the share price.
