Go-Ahead facing headwinds

Strip out last year's £13m one-off rail contract management benefit and group underlying operating profit actually grew 8 per cent to £110m. Top marks went to the deregulated bus division, where passenger growth and fare increases of 4-7 per cent offset government subsidy cuts and fewer concessionary travellers. Profits here rose 5 per cent to £35.4m and margins held steady at over 11 per cent - it would have been more but for a £1.5m loss on a contract with Dorset council.

Further acquisitions are likely, too, and not necessarily in its southern heartland, according to chief executive David Brown. In London, where Go-Ahead rules the roost, a contribution from the new Northumberland Park depot and further contract wins helped steer profits up 4 per cent to £34.8m, offsetting £3m of extra costs and subsidy cuts.

A sharp drop in passenger growth on the Southern and Southeastern commuter routes, meanwhile, is making life hard on the railways. True, underlying profit grew here to £40m, but the recession will limit volume growth this year and there will be £6m of franchise bid costs, too. It will be May 2013 before we hear who will run Thameslink for the next seven years. Go-Ahead stands a good chance. Even if it loses, Mr Brown thinks there's enough growth elsewhere to support the dividend - although some City analysts, despite strong cash generation this time, don't agree.

Given the weaker outlook for rail, broker Investec Securities expects a drop in adjusted pre-tax profit to £83.5m in 2013, giving adjusted EPS of 131.9p (£94.2m and 141.2p for 2012).