Scan to Download ios&Android APP

FirstGroup share price a 'value gem' as I Squared approach boosts stock

10:19, 27 May 2022

Share this article

Have a confidential tip for our reporters?

FirstGroup city bus in Aberdeen, Scotland
FirstGroup is considering a takeover offer from Squared Capital – Photo: Shutterstock

FirstGroup plc (FGP), a British multi-national transport group based in Scotland, has become the latest UK transport takeover target as US buyout business I Squared Capital Advisors made a £1.2bn unsolicited bid.

FirstGroup has said it is currently ‘evaluating the latest approach’ which it received earlier this week. It provides a cash component of 118p per share and the right to earn further 4.56p per share from the sale of the company’s US transit business and the sale of Greyhound Lines to Neptune Holdings.

It’s not the first time the group has courted an offer, but the company’s board has so far unanimously rejected them.

However, the market appears to favour this latest takeover attempt and FirstGroup’s share price was trading up 8.4% yesterday afternoon. Today, FirstGroup’s share price soared 5.47% and is currently trading at 136.9p per share.

With FirstGroup’s cautious approach, is there more value to be had for traders and investors in the months to come?

FirstGroup's share price has seen a boost following PE interest

A classic gem?

Analyst Owen Shirley from broker Berenberg has initiated a ‘buy’ recommendation and target price of 150p on the stock.

The company has made several positive changes that have garnered the approval of analysts. A year ago, for instance, it cleared most of its debts by selling its city buses and school bus operations in America for £3.3bn ($2.62bn).

Shirley said: “We think FirstGroup is a classic value gem, where investors may have overlooked a number of crucial changes.

“Firstly, it sold more than half of its business last year – all of its US assets. It now has no debt and no pension deficit. Secondly, the remaining businesses – UK Bus and UK Rail – have undergone genuine, permanent structural changes which vastly improve their outlook.”

Shirley added that FirstGroup ‘could plausibly return its entire market cap to shareholders in the next few years’. 

Cautious approach

But some analysts are still advising investors to take a cautious approach given the private equity interest.

While some buyout firms can help companies grow and improve their business model, others have followed agenda’s that suit them. It’s not uncommon for private equity firms to cut jobs, break up the business or saddle them with debt.

What is your sentiment on FGP?

1.3120
Bullish
or
Bearish
Vote to see Traders sentiment!

Walid Koudmani chief analyst of XTB said: “The stock may be considered an attractive option that begins to interest a bigger portion of investors, but it is important to remain cautious about the nature of private equity and their goals when investing which may have a limited time horizon.”

Room to grow

But Koudmani believes there are advantages to this potential deal. “Recent news of a potential acquisition by a private equity firm could provide a boost to [FirstGroup’s] share price in the short to medium term.

“Despite some scepticism regarding the offer which was made by Squared Capital, which would probably imply a sale of the company in five to 10 years, it could provide a much-needed cash inflow and share price boost in the meantime as the company benefits from the renewed influx of capita,” he said.

FirstGroup’s shares could still see some volatility given the private equity interest, however, Koudmani believes there’s still value for investors.

“While the price of First Group shares may not be as low as it was a few months ago, it still remains significantly below its all-time high reached in 2007. The price is finally managing to return to its pre-pandemic level after receiving a further boost following the recent acquisition announcement.

“While we may see some price fluctuations following this announcement, the company’s share price still has a lot of room to grow, especially if the overall economic situation starts to improve and markets overcome the difficulties brought by the changing of policies by central banks,” he said.

Read more

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?


Join the 400.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account

2. Make your first deposit

3. You’re all set. Start trading