Train and bus services group Go-Ahead (LON:GOG) has been downgraded by broker Investec after a trading update warned of challenges ahead in the UK rail sector.
The broker reduced its target price to 1360 pence from 1400 pence while the earnings per share target dropped to 132.1 pence from 137.6 pence.
However, the broker maintained a ‘buy’ stance on the stock and described its performances in the bus sector as “best in class”.
Analyst John Lawson said: “We see any share weakness as a buying opportunity”.
Go-Ahead said its bus business performed better than its rail businesses this year to June, a trend likely to continue into the next financial year.
The London Midland rail franchise became eligible for revenue support in November 2011, but Go-Ahead didn’t take it up but instead boosted marketing to increase revenues.
Passenger revenue to June is expected to increase by around four per cent on a like-for-like basis.
The group said full year capital expenditure should be around £80 million and in line with expectations, with a £30 million acquisition spend expected in the bus division.
Go-Ahead said: “Looking ahead to the next financial year, we expect the performance of our bus business to remain strong.”
“In rail, we expect slower than assumed economic growth rates to impact performance and, as stated in April, £6 million of rail bid costs are forecast next year.”
The share price was down 2.5 per cent to 1188 pence.