First Group (LSE:FGP) is one nearly penny stock I’m currently considering for my holdings. Here’s why.
Transport provider
First Group is one of the UK’s largest transport providers. As well as its UK operations, it has a presence in North America too. In the UK alone, First Group has over 30,000 employees and carries upwards of 700,000 passengers a day via its bus and rail operations.
A penny stock is identified as one that trades for less than £1. First Group shares are trading for 105p, hence my calling it a “nearly penny” stock. At this time last year, the shares were trading for 78p, which is a 34% return over a 12-month period.
Risks involved
The pandemic threw up a myriad of problems for First Group. Due to restrictions, customer numbers dropped substantially but costs remained. This led to performance being negatively affected and it needed to borrow cash to keep the lights on. Companies with lots of debt usually put me off, unless they have a way to service and pay down said debt. I believe First Group is well placed to do this due to its vital place in the UK’s transport infrastructure. However, new variants could lead to new restrictions and another drop in passengers. This could once more put pressure on the balance sheet.
Recent labour shortages here in the UK, such as a shortage of bus drivers, could also place unnecessary pressure on First Group’s operations. Reduced or affected operations could affect performance as well as consumer confidence.
A nearly penny stock I’d buy
I believe First Group’s position in the UK’s transport infrastructure is one of its biggest strengths. It possesses a large presence throughout the UK, in all major towns and cities, and possesses a large market share in its respective sector. As reopening continues, its operations could be vital to getting the public around, back to work, schools, and stimulating the economy.
A bonus factor I like about First Group is its recent commitment to cut harmful emissions and move towards greener vehicles. There has been a rise in ethical investing in recent times and more firms are focusing on reducing their carbon footprints.
First Group also has a good track record of recent and past performance, barring the pandemic period. I do understand past performance is not a guarantee of any future performance, however. In its most recent half-year report, announced in December, it revealed good progress financially and operationally. It reported that revenue increased by 8% and operating profit by a mammoth 162% compared to the same period last year. In addition to this, earnings per share increased and debt levels reduced. Operationally, passenger numbers are edging closer towards pre-pandemic levels.
There is lots to like about First Group, in my opinion. It has a good track record of performance and recent results look good to me. Its crucial position in the UK transport network as well as other international operations lead me to believe it will continue to grow and perform well. I would add the shares to my holdings and believe it is an excellent nearly penny stock.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
