Shares in FirstGroup (LON:FGP) rallied after the transport firm delivered better-than-expected FY26 profits and launched a fresh £100 million share buyback.
The UK transport sector faces headwinds from rising costs, lower consumer confidence and policy uncertainty. Yet this FTSE 250 bus and rail operator continues to benefit from its UK-focused diversification strategy as well as self-help measures.
Following FY26’s stronger outturn, FirstGroup expects earnings per share (EPS) to hold steady in FY27 from ‘a higher quality earnings base’.
On the road to growth
For the year to March 2026, FirstGroup’s revenue grew 25% to the best part of £1.72 billion amid resilient performances in both divisions. Adjusted pre-tax profits were slightly lower year-on-year at £156.7 million (FY25: £165.1 million) as First Rail’s lower earnings dragged on performance. But this exceeded the company-compiled consensus estimate of £153.9 million.
The year saw continued profit growth in the First Bus business, where revenue rose 33% to over £1.4 billion. Operating profit ticked up 7% to £102.8 million, despite reduced fare funding, lower passenger volumes and increased employer National Insurance contributions.
While regional bus passenger volumes were down, revenues in FirstGroup’s business and coach operations grew almost 30%. First Bus also benefited from growth in London franchises and the rapid expansion of its zero-emission fleet and electric depots.
Profits at First Rail were pulled lower by the additional costs related to the expansion of its open access rail capacity and the transfer of South Western Railway (SWR) into public ownership.
Nevertheless, this was a landmark year in which First Rail was awarded the contract to operate the London Overground from May 2026. This eight-year contract is worth roughly £3 billion in revenue and has a two-year optional extension period.
Cash returns
FirstGroup returned nearly £90 million to shareholders in FY26. Drawing confidence from its strong cash generation, the company upped the full year dividend from 6.5p to 7.2p.
In addition, it has also launched a further £100 million share buyback which should complete over the next twelve months.
What did the CEO say?
CEO Graham Sutherland said: ‘Our strong performance in FY 2026 against significant headwinds has reinforced our track record for delivery and shareholder returns. Looking ahead, our focus on operational excellence and our diverse portfolio, robust asset base and cash generative businesses will enable continued growth and scope for further, material returns.’
Sutherland added: ‘As the UK bus and rail industries evolve over the coming years, we will continue to position the group as a leading UK transport company with the commitment, expertise, scale and financial strength to build active, long-term partnerships to create better transport services.’
These are resilient figures from FirstGroup, which delivered an impressive £9 million of cost savings in FY26. Management expects free cash generation of around £400 million over the next three years, which should support additional returns of capital.
FirstGroup continues to evaluate ‘a strong pipeline of bus and rail growth opportunities’ in line with its UK-focused growth strategy.
We prefer FirstGroup to sector peer Mobico (LON:MCG), the old National Express, which is in the earlier stages of its turnaround.
Read the press release here: https://www.firstgroupplc.com/investors.aspx
