Why Stagecoach needs a miracle

Stagecoach featured in the newspapers on Wednesday and the share price seems to have taken a pretty thorough hammering due to whatever it said (*Interactive Investor provides a summary at the bottom). As the chart shows, the share price has been forcefully moved below its historic uptrend (RED), with the result that it's going to need a bit of a miracle, as we cannot view the price as cheap at its current 304p.

Whatever the company said to offend the meerkat has propelled the price into a region where ongoing weakness below 295p points at an initial 252p. Our secondary with closure below such a point is a longer term 233p.

The funny thing is: visually, the secondary makes some sense if stalking for a bounce sometime down the road, as it matches the lows of June 2012 and this is always a good reason for hope.

Unfortunately, if trapped and needing solace, the share price now needs better than BLUE - currently at an unlikely-looking 365p - before we'd dare think any recovery has integrity.

(click to enlarge)

Rather amazingly, this BLUE line has been rather carefully defined since the start of May this year as it looks pretty certain the market has had some suspicion of coming dangers.

In six months, the share price managed to hit this trend line six times - but not once was it permitted above. This is quite a telling danger signal, one usually spotted AFTER the event. Needless to say, nothing makes us smell a rat more than a share being wilfully restrained, as invariably it means someone knows something!

As always, there's a chance we're being needlessly hysterical - as surely the company must be benefiting from the massive drops in Fuel Prices in the UK. Except, of course, while prices have dropped, nowhere near the ratio of Crude Oil price drops has been passed on to the UK economy.

For a share in this position, we'd tend to take any rise seriously if the price were to recover above the Long Term uptrend. This would suggest taking an interest if it betters 330p anytime now.

*Half-year 'uglies' spooked the market

Half-year results were much as expected – revenue was up 27%, adjusted pre-tax profit 11%, and the dividend 9%. However, there were some uglies in there which clearly spooked the market.

Megabus Europe suffered hefty start-up losses, while lower petrol prices now make it cheaper to take the car. It's why operating profit at the regional bus division slumped by 19%.

Stagecoach also admits that, post-period-end, the terrorist attacks in Paris have slowed the rate of revenue growth in parts of its rail and inter-city coach operations in the UK and continental Europe. As a result, bosses have "modestly revised down" forecasts for adjusted earnings per share (EPS) for the year ending 30 April 2016.

Analysts have cut EPS forecasts from over 29p (26.7p in 2014) to 27.8p, which puts the shares on a forward price/earnings (PE) ratio of 10.9.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.