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Go-Ahead moves up as recovery in rail after timetable chaos offsets lower expected bus performance

The FTSE 250 transport operator said GTR’s performance had improved “substantially” since an interim timetable was put in place in mid-July
London Bus
The group’s London bus division was forecast to report a lower full year profit

Go-Ahead Group PLC (LON:GOG) shares moved up in early trading Thursday after revenue growth in the year to-date (YTD) and a recovery in its rail segment from timetable chaos earlier in the year offset a forecast of lower first half profits in its regional buses arm and an expected drop in full year profits for its London buses.

In a trading update the FTSE 250 transport group, which operates services such as Govia Thameslink (GTR) and Southeastern, left its full year expectations unchanged adding that GTR’s performance had improved “substantially” since an interim timetable was put in place in mid-July with an additional 200 services per day.

The group also said preparations for another 200 daily services from 9 December were “well advanced”.

Over the summer, the introduction of a new rail timetable caused chaos for thousands of UK passengers as service times were changed and trains cancelled or severely delayed.

Despite this, Go-Ahead appeared to shrug off the calamity, reporting a 6.5% jump in pre-tax profits for the full year in September to £145.7mln.

READ: What problems? Go-Ahead shakes off timetable chaos to post rise in annual profits

At the time, Go-Ahead apologised for the disruption caused by the disastrous timetable changes, but refused to take all of the blame, instead citing “collective industry failures”.

For its Southeastern rail franchise, YTD passenger revenues were up 7% with journeys rising 5% boosted by a resumption of full services through London Bridge station and good weather.

Go-Ahead added that it had also secured a contract in October for the Norway South package of rail services which will run for eight years and begin in December, while preparations were continuing for the start of its German rail contracts in June 2019.

Mixed trends in buses

For buses, the group's regional segment reported 3% YTD revenue growth and a 1.5% rise in passenger journeys, lifted by the hot summer weather.

However, the firm added that it expected regional bus profit “to be lower” for the first half of the year, although this would be offset by a strong second performance boosted by contributions from East Yorkshire Motor Services, which the company acquired in June, as well as a comparative with last year’s period which was hit by severe weather.

The group also said its ‘Pick Me Up’ service in Oxford, launched in June, had grown to over 15,000 registered users.

As a result, Go-Ahead said it expected a “slight improvement” in full year operating profits for the segment.

Less luck for London

There was less good news for the group’s London bus division, which it forecast would report a lower full year profit.

Mileage and peak vehicle requirement (PVR) (the number of vehicles required to operate the highest service frequency on a route) were both down YTD by 4% and 6% respectively, while revenues for the segment crept up by 0.5%.

The drop in mileage and PVR was blamed on contract losses in the last financial year, although the firm said it was seeing better performances in its Singapore bus operation, which is reported in the segment.

CFO succession

Go-Ahead also announced that Elodie Brian had been appointed as interim chief financial officer for the group starting 3 December, having previously served as finance and contracts director at Southeastern.

The search for a permeant CFO continues.

Broker says update “encouraging” but questions bus sustainability

In a note to clients, analysts at City broker Liberum retained their ‘Hold’ rating on the stock, saying the firm showed “encouraging progress” but questioned the sustainability of the growth in its regional bus segment.

“London Bus saw the impact of previously-flagged contract losses, but the key there is to demonstrate improved cash generation now the peak of contract renewals has passed. The valuation remains attractive, with good dividend yield support, but we would want to see further evidence of progress against challenging industry conditions before turning positive” they added.

Shares were down 1.9% at 1,521p.

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