Is Go-Ahead Group Back On Track?
Spreadex | Aug 31, 2017 11:44
Stock of the day: Go-Ahead Group(LON:GOG) (LON:GOG)
The transport company was derailed fairly early in the year. Having hit a 7 month high of £23.39 in mid-February the stock then swiftly undid the market-recovery seen in the second half of 2016 with its half year update. Since then it’s largely been stuck around the £17.50 mark, with only a few – very brief – forays away from that level. The Go-Ahead Group PLC now sits at a current trading price of £17.77.
The year’s ugliness can be traced back to the despised Southern Rail. It was the protracted strikes at the franchise that forced Go-Ahead to issue a profit warning back in February, after its total group interim pre-tax profit plunged 11% to £67 million. Understandably investors quickly got off the Go-Ahead train, sending the stock nearly 25% lower in the fortnight following the interim results.
Its third quarter update in April failed to inspire a turnaround despite there being a few specks of light. For the 9 months to the start of April Go-Ahead saw a 3.5% drop in passenger journeys at Govia Thameslink (which includes Southern) countered by a 4% rise at London Midland and a 2.5% increase in bus revenue in the capital.
The firm’s Q4 statement towards the end of June was largely more of the same. Go-Ahead stated that it expects Govia Thameslink passenger journey numbers to be down 4% for the year, though it should meet annual profit forecasts thanks to strength in its bus division.
August then saw the company got hit with some more bad news – only this time not related to Southern. The Department for Transport announced it was giving the West Midlands rail franchise to a consortium of Abellio, the East Japan Railway (T:9020) and Mitsui & Co., Ltd. (T:8031). That’s a big blow to Go-Ahead given that London Midland had consistently seen passenger journey growth as Govia Thameslink Railway faltered.
It loses the franchise in early December, leaving it with only Southeastern and the troubled GTR. That could have a huge impact on the company’s 2017/18 guidance next Thursday, making its next set of forecasts arguably far more important than whatever pre-tax profit it musters up for the recently ended financial year.
The Go-Ahead Group PLC has a consensus rating of ‘Buy’ with an average target price of £21.52.
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