Go-Ahead and buy some shares: Southern rail’s owner says revenues will miss targets
The market was still keen to Go-Ahead and invest in the owner of Southern rail, as shares nosed up 0.5 per cent despite the firm warning forecasts would be missed by its rail division.
The FTSE 250 firm, which owns a majority stake in Govia, said its rail division full-year results would miss expectations.
Read more: Going into work tomorrow? Southern commuters told not to bank on it
While revenue on London Midland and Southeastern is expected to grow by 2.5 per cent and 5.5 per cent respectively, GTR – operating the Govia Thameslink, Southern rail and Great Northern lines – passenger revenues will flop by four per cent. Go-Ahead said:
GTR services continue to be heavily impacted by industrial action. Discussions with the department for transport (DfT) regarding our contractual claims relating to the RMT industrial action are ongoing… Subsequent claims in respect of the Aslef action will be submitted to the DfT.
We expect to incur additional costs in this financial year.
So why are the shares up?
The simple answer is Go-Ahead's financial performance is pretty much immune to reductions in passengers on the Govia network.
Unlike other franchises Govia receives a fixed fee from the government for services, passing on fare revenue directly to the DfT.
So if less people are able to travel due to extensive industrial action, for example, Govia's revenues aren't impacted. The revenue numbers disclosed are simply for comparative purposes, company sources told City A.M.
Read more: RMT says its boss has been banned from Southern rail mediation talks
What do the analysts think?
Gert Zonneveld of Canaccord said the Southern rail debacle was only a small part of a well-performing company. Moreover, he was confident the issues will be solved in the New Year.
Investor sentiment continues to be impacted by the GTR issues, overshadowing good performances elsewhere.
We expect the performance issues to gradually improve going forward as new trains are introduced, driver shortages are addressed, the London Bridge redevelopment progresses and industrial relations improve.
Read more: Southern Rail revenues flop as government cut payments
Broadly speaking, Gerald Khoo of Liberum agreed, but warned there remains a danger the DfT could strip Govia of the Southern rail franchise.
We expect sentiment towards the company to remain adverse until there is a resolution to the Southern Rail dispute.
In particular, although we believe the government remains supportive of the group, there remains the risk that the political winds may change in a way that puts the group's continued operation of the franchise in jeopardy.