FirstGroup (LSE:FGP) shares climbed 3.1% to a new 52-week high of 223.6p after the UK transport operator announced a £109 million bus asset sale to the West Yorkshire Combined Authority and secured two new franchise contracts expected to generate approximately £40 million in annual revenue.
The agreements form part of West Yorkshire’s transition towards a franchised bus network and are expected to provide FirstGroup with additional cash proceeds while maintaining its involvement in regional bus operations.
The company anticipates a post-tax disposal gain of approximately £30 million and cash inflows of around £55 million during its 2027 financial year.
£109 Million Asset Sale Supports Cash Generation
FirstGroup has agreed to sell £109 million of bus assets to the West Yorkshire Combined Authority as part of the region’s bus franchising programme.
The transaction includes depot disposals, from which the company expects to recognise a post-tax gain of approximately £30 million.
FirstGroup also anticipates receiving around £55 million in cash during FY2027, with the transaction providing additional financial flexibility.
Under the agreement, First Bus will continue operating its existing commercial services from the depots under a nominal lease-back arrangement until the new franchising arrangements commence.
This structure is intended to maintain operational continuity during the transition to the franchised network.
New Franchise Contracts Worth £40 Million Annually
Alongside the asset sale, FirstGroup has secured two bus franchise contracts covering Bramley and Huddersfield.
Both contracts are scheduled to commence in May 2027 and will run for an initial five-year period, with an option to extend for a further two years.
The agreements are expected to generate combined annual revenue of approximately £40 million.
Under the franchising model, the West Yorkshire Combined Authority will retain passenger revenue risk, while FirstGroup will receive payments for delivering contracted bus services.
This arrangement provides greater visibility over contracted revenue and reduces the company’s direct exposure to fluctuations in passenger demand.
Bus Redeployment Expected to Reduce Capital Spending
FirstGroup also expects to redeploy approximately 130 buses to other parts of its network once the West Yorkshire franchising arrangements begin.
The transfer of these vehicles is expected to reduce the need for additional fleet investment elsewhere in the business.
The company estimates that redeployment could generate approximately £10 million in capital expenditure savings over two years.
The combination of asset sale proceeds, new franchise revenue and reduced fleet investment requirements supports FirstGroup’s broader capital allocation strategy.
Share Buyback Programme Continues
The announcement coincided with a routine share repurchase disclosure under FirstGroup’s existing £100 million buyback programme.
The ongoing programme represents another element of the company’s approach to returning capital to shareholders.
The asset disposal and expected cash receipts provide additional financial flexibility as FirstGroup continues to invest in its transport operations and pursue new franchise opportunities.
Shares Outperform Amid Cautious UK Market Conditions
FirstGroup shares advanced 3.1% to 223.6p following the announcement, reaching their highest level in 52 weeks.
The rise came against a mixed broader market backdrop, with investors awaiting the Bank of England’s upcoming interest rate decision and Monetary Policy Report.
Market participants were also monitoring forthcoming US employment figures for their potential influence on sterling and UK equity sentiment.
FirstGroup’s gains reflected investor attention on the financial implications of the West Yorkshire agreements, including expected disposal proceeds, contracted revenue and potential capital expenditure savings.
More About FirstGroup
FirstGroup is a UK transport operator providing bus and rail services.
Its First Bus division operates regional and urban bus networks and participates in public transport franchising arrangements.
The company’s strategy includes securing contracted transport operations, managing its asset portfolio and allocating capital through investment and shareholder returns.
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