Transport operator the Go-Ahead Group plc (LON:GOG) left its full year expectations unchanged as service at its Southern rail network stabilised following industrial action.
The company said in its third quarter trading update today that discussions were ongoing with the Department of Transport and unions over a long-running dispute over the safety of driver-only operated trains.
Delays and cancellations to train services on Southern, owned Go-Ahead’s Govia Thameslink Railway (GTR) subsidiary, have increased costs and hurt profits as the company had to refund passengers.
“GTR remains fully committed to resolving these issues so as to provide improved service for customers and reduce uncertainty for our stakeholders,” the group said in a statement today.
National @RMTunion demo in London next week marking year long fight of Southern guards and drivers for rail safety https://t.co/NVVSGEWA6M pic.twitter.com/ddcYCA4BrF
— RMT (@RMTunion) 19 April 2017
At the half-year results in February, Go-Ahead lowered its full year profit estimates due to slowing passenger volumes on the back of issues at Southern. At the time it said the impact on profit was about £10mln, which could increase to £15mln given the “continuing uncertainty”.
In the third quarter update, Go-Ahead said the "potential impact on rail profitability for the full year remains consistent with the guidance outlined at the half year results". Revenue in the GTR division fell 5.0% in the third quarter as passenger journeys dropped 3.5%.
Revenue growth in other rail businesses and bus division...
In other areas of the business, Go-ahead reported revenue growth.
Southeastern rail revenue rose 3.0% despite a 0.5% dip in passenger journeys. The company implemented a cost efficiency programme to offset the revenue shortfall over the remainder of its contract with the DfT until December 2018.
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The London Midland rail network saw revenue increase 6.0% on a 4.0% gain in passenger journey.
In the bus division, revenue increased 1.5% in regional journeys, though passenger numbers were subdued.
Bus revenue in London gained 2.5% and Go-Ahead said it has secured 95% of expected revenue for the 2017/18 fiscal year through the normal bidding cycle.
London bus operations continued to be affected by congestion in the city, however revenue generated through Quality Incentive Contracts has stabilised.
“We continue to engage with TfL and the London Assembly regarding the ongoing issue of congestion in the capital and play our part in the successful implementation of an ultra low emission zone by 2019," Go-Ahead said.
The company added that it has started refinancing its £200mln sterling bond ahead of its maturity in September 2017 and expects finance costs to reduce in the year to June 2018 due to lower interest rates.
ShoreCap reiterates 'buy' rating on Go-Ahead...
Shore Capital said the GTR division puts Go-Ahead in a difficult position as unions appear unwilling to budge.
However, the broker reiterated a 'buy' rating and target price of 1,729p, saying the company has a growing overseas bus operation and revenue and profits from rail services are set to come from Germany.
Go-Ahead said the mobilisation of its German rail contracts are due to commence in 2019 and are "progressing well". The group is also continuing to source bids in international markets and ShoreCap believes there is the potential to win further rail franchises.
ShoreCap said Go-Ahead also has a strong balance sheet, which "supports a return of capital to shareholders" and the broker believes the selloff is overdone.
Shares rose 5.15% in morning trading.