First Group shares fall on warning about school bus arm

First Group owns or operates more than 70,000 school and transit buses in the US

Shares in First Group have fallen despite it saying it was on course to meet earnings and cash targets.

The transport group, which runs the Great Western train franchise, said in a trading update that its British rail business should deliver revenue growth of 5.1% for the year.

But investors were unnerved by a warning that its school bus division is under pressure from budget cuts.

First Group shares opened more than 5% down, before closing 3.5% lower.

The company, the UK's largest train operator, said in a statement: "We are encouraged by improving trends in UK rail and Greyhound and a continued steady performance in our UK bus and transit operations."

But it added that, during the past three months, its First Student bus business had been "disappointing," and said margins at the division would continue to be under pressure this year.

Shares in First Group have fallen 15% since the beginning of the year.