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Is FirstGroup (LSE:FGP) Undervalued As It Sells Depots And Wins New Bus Contracts?

Simply Wall St · 1d ago

FirstGroup (LSE:FGP) has reshaped its West Yorkshire footprint by agreeing to sell five depots and 330 buses to the West Yorkshire Combined Authority for £109m, while also securing fresh bus franchise contracts in the region.

Those West Yorkshire moves come as FirstGroup’s share price has picked up speed, with a 30 day share price return of 29.22% and a 90 day gain of 26.63%, while the 1 year total shareholder return of 16.92% and 5 year total shareholder return of 162.15% suggest that momentum has been building over a longer stretch.

Scan other transport and infrastructure plays showing similar contract and cash flow shifts with our curated list of solid balance sheet and fundamentals (10 results) as a comparison set to FirstGroup's latest West Yorkshire reshuffle.

Bulls see FirstGroup trading too cheaply for a business locking in fresh franchise income and booking a £30m gain. Bears point to falling annual revenue and earnings. Which side do the current valuation signals back?

Most Popular Narrative: 10% Undervalued

On the most followed view, FirstGroup is worth £2.60 a share, compared with a last close of £2.34, which puts the current West Yorkshire deal and wider UK focus under a valuation gap spotlight.

The planned deployment of substantial capital for bus electrification, supported by government co-funding and a guided normalisation of annual bus capex to a range of £80 to £100 million from FY 2028, is expected to leave a newer fleet in place while reducing ongoing maintenance capital needs and supporting future free cash flow.

See why 4 investors see FirstGroup as 10% undervalued.

Result: Fair Value of £2.60 (UNDERVALUED)

Still, falling annual revenue and earnings growth, as well as pressure on regional bus volumes and open access rail profitability, could easily challenge the current FirstGroup bull case.

Find out about the key risks to this FirstGroup narrative.

Next Steps

Mixed signals on FirstGroup so far. If you want to move quickly and build your own take from the ground up, start by weighing the 1 key reward and 1 important warning sign.

Looking for more ideas beyond FirstGroup?

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