Today's Falling Knife: FirstGroup Plunges 21%

Shares in FirstGroup  (LSE: FGP  ) fell over 21% in early trade this morning, after it announced a rights issue, dividend cut and profit warning in its preliminary results.

Despite revenue climbing 3.3% to £6.9 billion, the bus and rail operator revealed that underlying pre-tax profit fell 36.5% to £172.4 million for the year, and that no final dividend was proposed amid a new "progressive" policy.

Management confirmed that no interim dividend will be paid for the year to March 31, 2014, but will recommence with that year's final dividend, as the company targets "an appropriate, progressive and sustainable dividend policy with cover of 2.0 to 2.5x in the medium term".

A "3 for 2" rights issue that aims to raise £615 million was announced separately, with the issue price of 85 pence per new ordinary share representing a discount of 62% to the closing price on May 17, 2013. The proceeds will go back into "continued investment" in the business, as well as reducing debt.

Additionally, chairman Martin Gilbert has agreed to stand down following completion of the rights issue and once a successor has been chosen. Gilbert has led the company for 27 years, with CEO Tim O'Toole leading the thanks in today's results.

O'Toole went on to say: "The real long term opportunity for us, however, arises from our business recovery programmes, particularly in First Student and UK Bus. We have clear plans in place for all of our divisions, and while there remains significant work to be done, our confidence continues to grow as a result of the progress to date."

While this initially appears to be an isolated incident and not the start of another "Shareholder Spring", FirstGroup investors will be feeling fairly disgruntled with the news -- as evidenced by over 50 pence being shaved off the share price already this morning, and likely more to come...

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