Just three months after it pulled into the FTSE 100, Stagecoach Group, the bus and train operator, is set to reverse out again.

That much was evident from today’s 20 per cent fall in its shares, which cut its stock market value to less than £1 billion. The severity of that slide makes ejection from the index in next week’s quarterly review an inevitability.

The cause was the disclosure that revenue growth at its South Western train franchise, its key commuter business, continues to slow. Given the operational gearing of rail companies — a high level of fixed costs means that changes in revenues have a disproportionate effect on the bottom line — next year’s profit forecasts were slashed by to 20 per cent.

It is reasonable to assume that the full impact of City job losses have yet to feed through to ticket sales. Furthermore, the peak period for season ticket renewals is just beginning, meaning the company can so far have little clarity on sales.

Stagecoach’s UK and North American bus operations should remain resilient and, given a longer-term “modal shift” away from rail, are proving encouragingly contra-cyclical. At 140p the shares also offer a solid 4.4 per cent dividend yield, with the payout more than three times covered by forecast earnings.

At 7 times next year’s earnings, the shares might appear attractive. But given the capacity for rising unemployment to send Stagecoach off the rails, the shares are still best avoided.

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