JPMorgan Cazenove has shunted its rating for Go-Ahead Group PLC (LON:GOG) back to ‘underweight’ from ‘neutral’ following the transport operator’s full-year results yesterday.
The US bank also chopped its target price for the FTSE 250-listed firm by 28% to 1,355, down from 1,882p, with the shares currently changing hands at 1,481p each, down 4.5%, or 69p in mid morning trading today.
READ: Go-Ahead shares travel lower after full-year profits hit by strikes at Southern railways
In a note to clients, JPMorgan’s analysts said: “We believe Go-Ahead’s investment case has many similarities with Stagecoach, with a short rail portfolio, perpetually higher CAPEX than depreciation, UK focus and a deteriorating outlook in all divisions.”
“In addition, we do not believe the current dividend can be covered by ex-rail cash flow, even once Capex reduces to more normalised levels,” they continued.
The analysts said: “We are also skeptical that Go-Ahead will be able to keep Bus profits flat y/y in FY18e, and have set our Bus forecasts c.15% below consensus.”
Southern rail strikes take a toll
Go-Ahead - the majority owner of strike riven Southern’s operator Govia Thameslink Railway (GTR) – saw its operating profit fall 7.4% to £150.6mln in the full year to 1 July, down from £162.6mln last year, as operating profit margins fell to 4.3% from 4.8%.
The group’s pre-tax profit dropped 5.7% to £136.8mln, down from £145.0mln the prior year.
Revenue, however, rose 3.6% to £3.4bn from £3.3bn, as growth in its bus operations and the West Midland and Southeastern rail divisions offset a decline from GTR.
The company, which lowered its full-year profit forecast in February following the strikes at Southern, said its results were in line with expectations and that it has set a target of generating 15% to 20% of its profit from outside the UK within five years.