Arriva Investors Should Stay on Board for Long Term ; THE INVESTMENT COLUMN
Our view: Hold
Share price: 608p (-4p)
The bus and trains operator Arriva first expanded into mainland Europe 10 years ago, and there is little doubt that the group's foray onto the Continent has been a runaway success. From a standing start, the division has grown into a business with a near pounds 700m turnover which accounts for 42 per cent of group turnover.
It runs 215 trains and more than 8,000 buses on routes in Germany, Italy, the Netherlands, Spain, Portugal, Denmark and Sweden. In the past five years alone sales have tripled.
Yesterday, Arriva unveiled a 14 per cent jump in first half operating profit to pounds 24m at the business. In the future, it hopes to replicate this success in eastern Europe.
The group's strategy is to develop a small operation in a new country, run by a management team with an entrepreneurial outlook and focused on building up the business. It is very much a slowly, slowly approach, that rules out major acquisitions. The Czech Republic and Poland are both on the radar of Arriva's management at present and investors should not be surprised if it makes a move into one or both of these countries before the end of the year.
Overall, yesterday's results revealed a 5 per cent increase in operating profits to pounds 56m, despite rising fuel cost pressures. The biggest operator of London's red double-decker busses also unveiled a 5 per cent rise in its dividend to 5.32p.
In the UK, Arriva operates the rail franchise in Wales. It is waiting to find out whether it has won the South Western franchise, where it is one of three bidders. A decision is expected in the autumn.
Clearly, eastern Europe presents Arriva with a great growth opportunity which, given its track record, the group should have little trouble cashing in on. Meanwhile, the company insists that there is also plenty of growth in its existing continental markets.
At 13 times forward earnings, the stock is worth holding for the long term.
Our view: Buy
Share price: 375p (-10p)
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Publication information: Article title: Arriva Investors Should Stay on Board for Long Term ; THE INVESTMENT COLUMN. Contributors: Not available. Newspaper title: The Independent (London, England). Publication date: September 8, 2006. Page number: 55. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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