UK's Stagecoach says on course to hit profit target

(Adds CEO comment, share price)

LONDON, Dec (Shanghai: 600875.SS - news) 7 (Reuters) - British transport company Stagecoach stuck to its forecast for a dip in annual earnings, saying improving demand for rail travel would help offset weakness in its bus business.

The company, whose shares gained 3.5 percent after the trading update, said it was confident in the future and lifted its interim dividend by 8.6 percent to 3.8 pence per share.

The shares are however down by more than a quarter this year, reflecting what the company describes as "subdued" revenue trends and specific concerns over passenger numbers on East Coast trains between London and Scotland.

The chief executive of the company, which also operates London commuter rail services on South West Trains, threw his weight behind planned government changes to train contracts.

The British government plans to overhaul the country's much-criticised railways to try to improve efficiency and end derided excuses for poor services such as the wrong kind of snow or leaves causing delays on the line.

That would be done through new management teams which would give train operators like Stagecoach a role in managing the tracks alongside Network Rail, the state-owned infrastructure company.

Martin Griffiths, the chief executive of Stagecoach, said that proposals would make management more accountable and better equipped to resolve issues.

"If we can actually see this now happen and build on it positively and make the words become real action then I endorse it absolutely," he said in an interview on Wednesday.

In the six months to Oct (HKSE: 3366-OL.HK - news) . 29, Stagecoach said a poor service from Network Rail, whose maintenance can cause delays, hit its rail business and meant fewer passengers used its services.

For the year to the end of April 2017, Stagecoach said its forecast for earnings per share (EPS) was broadly unchanged, with the current analyst consensus standing at about 25 pence, after it reported half-year EPS of 14.4 pence on Wednesday.

The EPS figure was 27.7p last year.

The company sought to reassure investors over the East Coast line, saying it would be profitable over the contract to 2023 and that revenue growth was expected to accelerate in the second-half of this year.

The forecast for the year includes a change in profit breakdown as a recovery in rail passenger numbers, helped by pricing changes and additional marketing on routes to Scotland, makes up for lower demand for bus journeys.

In some regions, like northern England and Scotland, economic weakness has reduced bus travel, while people are using their cars more due to the lower price of fuel, Stagecoach said. (Reporting by Sarah Young; editing by Kate Holton/Keith Weir)