Ruth Harris, Investment Research Analyst
· Is the UK public transport market worth considering?
· How does FirstGroup operate across bus and rail?
· Should investors look beyond the Government intervention?
6 min read
What’s happening in the UK public transport sector?
The UK’s public transport has frequently been in the political spotlight in recent years. Following years of industrial action, delays to High Speed 2 (HS2) and increasing pressure to modernise ageing infrastructure, transport remains a key issue for both policymakers and the public.
The election of Prime Minister Andy Burnham has added additional uncertainty, with further devolution and greater public control of transport networks expected to remain high on the political agenda.
What is FirstGroup?
For listed transport operators, these changes create both risks and opportunities. One such UK listed company is FirstGroup, a leading private operator of bus and rail services.
While concerns around rail nationalisation and bus franchising have weighed on investor sentiment, the group has proved adaptable in the face of a changing regulatory landscape. Combined with strong cash generation, disciplined capital allocation, and growth opportunities across both bus and rail, the company could offer investors exposure to a business that is becoming simpler, more resilient, and potentially undervalued.
.png "Market-Insight-(2).png")
*For the year ended 28
th March 2026
FirstGroup operates through two core divisions: First Bus and First Rail. Together, they carry nearly 1.5m passengers every day, connecting communities across the UK and providing essential transport for work, education, and leisure.
What does the current market look like?
The UK bus market is highly fragmented, with different operating models across different local authorities, but some are adopting franchising models.
Andy Burnham was a strong advocate of franchising through the Bee Network in Greater Manchester during his time as Mayor, and further devolution could encourage other regions to follow a similar model. At first glance, this appears a threat to incumbent operators such as FirstGroup. However, while franchising could reduce the company's share in legacy markets, it also creates opportunities to win contracts in new regions where it previously had little or no presence. The model is also significantly more ‘capital’ light, with much of the revenue risk and part of the cost risk transferred to local authorities.
The table below shows how bus passenger journeys have changed across Great Britain for the year ending March 2025, according to the Government. Although this data is not limited to any one provider, we can see that passenger numbers only dropped in London in the year to March 2025.
.png "Market-Insight-(3).png")
.png "Market-Insight-(4).png")
.png "Market-Insight-(1).png")
Source: The UK Government
*The ~ denotes that the figure is approximately 0%
What is the outlook for First Rail?
Rail is undergoing a similar transition. First Rail makes up only around 16% of adjusted group revenue, though higher margins mean it contributed around 45% to adjusted earnings per share (EPS) in the most recent financial year ending 28th March 2026. This revenue source is expected to fall in coming years as the creation of Great British Railways (GBR) will see most passenger rail services gradually move into public ownership as existing contracts expire. While this will be a headwind to FirstGroup’s earnings, the financial impact may be mitigated by other opportunities in the sector, including open access rail.
The open access model offers higher potential returns than contracted rail services but also carries greater commercial risk. Passenger demand, pricing, and competition will all impact profitability. There also remains political uncertainty over whether future governments could incorporate open access services into GBR. Nevertheless, FirstGroup’s management views the segment as an attractive area for future investment, particularly as traditional rail contracts disappear.
How do the firm’s books look?
Recent annual results reiterated strong operational fundamentals, including solid cash generation and balance sheet. Management remains committed to returning a significant amount of capital to shareholders. The company completed a £50m share buyback during the 2026 financial year and has announced a further £100m programme over the following 12 months.
Despite these strengths, investor sentiment towards FirstGroup has remained subdued. Regulatory uncertainty surrounding rail nationalisation and bus franchising has overshadowed many of the operational improvements delivered over recent years.
At the time of writing in August 2026, the shares trade on approximately 9.1 times forward earnings and a 3.9% dividend yield at a share price of £1.82, a valuation that appears undemanding for a business with solid cash generation, multiple avenues for growth, and a shareholder-friendly capital allocation policy.
What are the potential downsides?
There are risks, with political intervention remaining the most obvious. Franchising could reduce market share in some bus regions, while open access rail remains exposed to potential regulatory change over the longer term. There are also execution risks as the company integrates acquisitions and continues transitioning its business model.
If the group can continue adapting to a changing industry landscape while maintaining its disciplined approach to shareholder returns, the current valuation may not fully reflect the quality and resilience of the business. For investors seeking diversified exposure to the UK's transport sector, FirstGroup could prove an overlooked opportunity.
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publication but may have changed at the point of reading.