Go-Ahead Group PLC (LON:GOG) said today that its overall expectations for the full year are unchanged, with the transport operator seeing modest revenue growth in its buses business and mixed performance from its rail franchises, with Southern hit by strike action.
In a pre-close trading update for the year ending 1 July 2017, the FTSE 250-listed group said its regional bus “continues to deliver revenue growth broadly in line with our expectations and slightly ahead of wider industry trends”, with expected full-year like-for-like revenue growth of around 1% for both its regional and London bus businesses.
READ: Go-Ahead says Southern rail strikes have stabilised as it repeats full year forecast
The firm added that strong growth in passenger journeys in some regions has been offset by softer performance in other operating areas, leading to expectations for a flat like-for-like figure for its regional business, while mileage in its London buses business is seen down around 1.5%.
Go-Ahead said “growth in revenue and passenger numbers is also slightly subdued as a consequence of the restructuring of selected route networks to match passenger demand and reduce costs.”
Meanwhile, the group’s rail division – which operates the Southeastern, London Midland and Govia Thameslink Railway (GTR) franchises through its 65% owned subsidiary Govia – saw mixed performances.
Southeastern saw passenger growth continue to slow, with an expected like-for-like fall of 0.5%, although passenger revenue is seen up around 3.0% supported by a cost efficiency programme.
The group said the Department for Transport (DfT) has started the tender process for the South Eastern franchise and Govia has expressed an interest. Rival transport group Stagecoach PLC (LON:SGC) revealed today that it has been short-listed by the DfT to receive an Invitation to tender for the new South Eastern franchise.
London Midland growth solid; GTR declining
Go-Ahead added that the London Midland's financial performance remains strong, with revenue and passenger numbers both growing ahead of the wider industry, and predicted like-for-like growth seen at around around 4.5% and 4% respectively.
The firm added that it is awaiting the DfT's announcement regarding the outcome of the West Midlands franchise competition, for which it has been shortlisted along with one other bidder.
However the GTR franchises are expected to see its like-for-like passenger growth and journeys both decline by around 4.0% hit by strike action and noted that, disappointingly, the ASLEF rail union has called for an overtime ban for Southern train drivers which, if it goes ahead, “will result in unnecessary disruption for customers.”
Liberum says valuation remains underpinned by Bus divisions
In a post-results note to clients on Go-Ahead, analysts at Liberum Capital said: “We see modest downside risk to consensus, but the group’s valuation remains underpinned by its Bus divisions, with an effective free option on rail upside from either existing franchises or new wins.”
They repeated a ‘buy’ rating on the stock with a 1,975p price target.
In early morning trading, Go-Ahead shares were 0.3%, or 6p higher at 1,838p.
Go-Ahead will release its full year results on September 7.
-- Adds share price, broker comment, Stagecoach news --