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Go-Ahead hindered by UK rail

The future of UK rail franchises will become clearer for the transport operator following an industry review
Go-Ahead hindered by UK rail

The loss of the London Midland franchise – which concluded at the end of 2017 – took a chunk out of Go-Ahead’s (GOG) pre-tax profits last year. That, combined with the cost of a settlement with the Department for Transport over service failures, offset rising passenger revenue at the Southeastern and Govia Thameslink Railway (GTR) franchises and meant rail operating profit fell more than a third. 

IC TIP: Hold at 2,184p

Rail looks set to continue being a thorn in the group's side. Chief executive David Brown said he was “disappointed” that the Department for Transport terminated the new South Eastern franchise competition, leaving the group in operation of the South Eastern franchise until April 2020. Go-Ahead will continue to operate the GTR franchise until September 2021, with the possibility of a two-year extension. The group is also participating in the Williams Review of the UK rail industry. Chief financial officer Elodie Brian said that while the franchise system needed reform, there was still a role for private operators. An update on the review is expected this Autumn.

The state of the rail business may call into question the sustainability of the generous dividend, but Ms Brian said these payments can be supported by other businesses, such as bus and international. The bus business saw operating profit increase 5 per cent to £96m, driven by London and international and Go-Ahead is aiming for the international business to make up between 15 per cent and 20 per cent of profits by 2022.

Analysts at Liberum expect adjusted pre-tax profits of £100m during the year to June 2020 giving EPS of 176p, falling to £91.4m and 169p in FY2021.

GO-AHEAD GROUP (GOG)  
ORD PRICE:2,184pMARKET VALUE:£ 943m
TOUCH:2,182-2,194p12-MONTH HIGH:2,226pLOW: 1,480p
DIVIDEND YIELD:4.7%PE RATIO:16
NET ASSET VALUE:718p*NET DEBT:78%**
Year to 29 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20153.227912290
20163.3614521896
20173.48137208102
20183.46146207102
20193.8197137102
% change+10-33-34-
Ex-div:31 Oct   
Payment:22 Nov   
*Includes intangible assets of £109m or 252p per share **Does not include restricted cash of £485m