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Southeastern rail operator Go-Ahead on the front foot after well-received trading update

Go-Ahead said it remains in talks with the Department for Transport (DfT) regarding an extension to its contract for the South Eastern franchise
Go Ahead
Govia Thameslink Rail is not expected to contribute to group profitability this year

Transport operator Go-Ahead Group PLC (LON:GOG) shares jumped as it delivered revenue growth across most its divisions in the year to date.

In a trading update for the period from 1 July 2018 to 27 April 2019, the company posted a 4.0% rise in like-for-like revenue for the regional bus unit as passenger journeys increased 3.5%.

READ: Go-Ahead Group sees first half profit beat expectations as the train takes the strain

However, yields were lower due to campaigns targeted at younger passengers. The company said it has plans to improve yields while ensuring it continues to grow customer numbers and manage the cost base.

Operating profit in the regional bus business is expected to be flat in the second half compared to the year-ago period. Full year expectations for the business are broadly unchanged.

Go-Ahead raises expectations for London and international bus unit

The group's London and international bus unit saw like-for-like revenue dip 0.5% in the year to date as mileage fell 4.0% and peak vehicle requirement – the number of vehicles needed to operate the highest frequency service on a route – dropped 5.5% following the loss of contracts.

But Go-Ahead raised its expectations for the year after a “strong operational performance” in London, which has resulted in higher quality incentive contract income.

It said Singapore's operations also performed well and its first bus contract in Dublin has been successfully mobilised.

While mileage and peak vehicle requirements were lower, the group expects growth in both metrics next year as new contracts are introduced, including a second one in Dublin.

The rail division, which operates the Southeastern and Govia Thameslink Railway (GTR) franchises, delivered a 5% increase in passenger revenue as journeys rose by 4% in the year to date.

However, the growth marked a slowdown as the previous year was boosted by London Bridge station's reopening in January 2018.

Go-Ahead still in talks for Southeastern contract extension 

Go-Ahead said it remains in talks with the Department for Transport (DfT) regarding an extension to its contract for the Southeastern franchise.

GTR is not expected to contribute to group profitability in the current financial year after a settlement reached with the DfT last December, as previously announced.

The company agreed to spend £15mln on passenger improvements to hold onto the GTR franchise after a botched timetabling roll-out in May 2018.

“Service levels at GTR continue to improve with punctuality for the month of April reaching 89.3%, a record level for the franchise, after nine consecutive months of year on year improvement,” said chief executive David Brown.

In Germany, two of five secured rail contracts will begin operations this weekend. The third contract is expected to start operations in December 2019.

Go-Ahead shares rose 9.2% to 2,058p in late morning trading. 

Jefferies hikes target price 

Jefferies reiterated a 'buy' rating and raised its target price for Go-Ahead to 2,290p from 2,260p. The broker also lifted its estimates for fiscal year 2019 earnings per share by 8%. 

"We reiterate our preference for Go-Ahead given its: attractive regional bus exposure, initiatives targeting sustainable regional bus volume growth, UK rail track record and performance and its London bus bidding cycle positioning," Jefferies said in a note to clients. 

"We think this update supports our thesis and we reiterate our 'buy' recommendation."

 -- Adds broker comment and share price --

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