Go-Ahead faces uphill climb

Go-Ahead’s (GOG) half-year results are a complicated read. Figures for 2021 have been radically restated, with pre-tax profit shunted up by £26mn, and net assets pushed down by £52mn. There is also an abundance of adjustments for 2022, together with explanatory notes. 

This shouldn’t come as a surprise; the public transport provider has had an eventful year. In January, its shares were briefly suspended because it failed to publish its results on time. The delay arose from a scandal in which Go-Ahead was stripped of its Southeastern rail franchise, after failing to declare tens of millions of pounds of taxpayer funding. Other historic franchises and onerous contract provisions in Germany have added to the financial confusion. 

The company is seeking to draw a line under the last year, with “a new management team, a refreshed strategy, resilient operations and ambition for future growth”. For now, however, recovery seems some way off. Total revenue is down 13 per cent year-on-year, which management attributes to the loss of the Southeastern franchise.

This isn’t the full story, however. The number of bus and train journeys in all of Go-Ahead’s markets remains lower than before the pandemic, and the bus division is still leaning on government Covid support. Adjusted operating profits across its regional bus division, London & international bus arm, and its UK rail business also fell year-on-year. 

There are some encouraging signs. Since the half-year end, Go-Ahead has been awarded a new national rail contract by the Department for Transport (a decision blasted as a “sick joke” by the rail union RMT). This contract will run for at least three years and has “extremely limited” exposure to changes in passenger demand.

Dividends are also due to return at the end of the year, and the group’s balance sheet is robust, with an adjusted net debt/Ebitda ratio of 1.2. This should leave scope for investment. 

Go-Ahead’s spending habits need close scrutiny, however - particularly in relation to buses. The group expects bus capital expenditure to reach just £40mn in 2022, which is significantly lower than the amounts spent in 2021 and 2020, when Covid-19 had already hit investment plans. The average age of its fleet now stands at 8 years old, having crept up from 6.5 years in 2018. 

This would be worthy of attention in any year. However, Go-Ahead says the decarbonisation of its buses is now a “key priority”. Going electric is a pricey prospect and transport companies are under growing pressure to go green. Several years of low capital expenditure won’t make this any easier. Hold. 

Last IC View: Sell, 648p, 24 Sep 2020