MERSEYSIDE’S second- biggest bus operator, Stagecoach, anticipates its rail operations will remain profitable – although not immune to the recession – in the financial year to April, 2010.

A trading update by the Scottish-based group said overall pre-tax profits for the current year to April 30, 2009, should be in line with market expectations.

But, by early afternoon, its shares had fallen by around 4.7% after investors reacted to news that a dispute with the Department for Transport over revenue support at its South Western Trains franchise could result in a significant operating loss in its UK rail division for the year ending April 30, 2011.

Stagecoach also owns a 49% stake in Sir Richard Branson's Virgin Trains operation, which serves the Liverpool to London route.

The group’s trading update revealed that, in the 48 weeks to March 29, like-for-like revenue from UK rail, excluding its East Midlands Trains franchise, rose 7.3%.

However, revenues at the Virgin division only managed a meagre 0.5% improvement due to the ongoing engineering work linked to the West Coast mainline upgrade.

Government compensation will make up for lost profits. A £12m exceptional restructuring charge within the rail operation is expected to yield annual savings of £50m in operating costs.

The group added that like-for-like revenues for its UK bus division, during the 48 weeks to March 29, were 9.7% ahead.