Go-Ahead's buses beat its trains in summer slowdown

 

Buses-to-trains transport group Go-Ahead will this week reveal how the slowdown in the UK economy has hit its returns.

While the group is expected to report profits for the year edging up at around £114m, of closer interest will be how its Southern train arm has fared given the strain on passengers' wallets.

Southern is one of the UK's busiest rail networks, connecting central London to the South coast, East and West Sussex, Surrey and parts of Kent and Hampshire, and had 162 million passenger journeys last year. It is also the firm behind the Gatwick Express, which is likely to have been hit by the summer slowdown as people stayed in London to enjoy the Olympics.

For the rest of the business, rising fuel costs are also a concern, with City analysts saying travellers' finances are so tight it is hard for firms to automatically pass on these increases in higher fares.

Analysts at Deutsche Bank said the Southern franchise “remains the key” and points out that it is ineligible for revenue support until 2012: “We would argue that risk is currently to the downside.”

But the bus arm is likely to be doing well: “Go-Ahead continues to deliver a strong UK bus performance; an excellent outcome when the headwinds (economic, fuel, reduced subsidies etc.) are taken into account.”

Other City watchers note that the firm's balance sheet under new CEO David Brown, remains strong and hint that a rise in the dividend is possible, though the stock is already yielding 6.2 per cent.

Some bankers think Go-Ahead should make a bid for Thameslink to solidify its London position. Peel Hunt said in a note to clients: “The outlook is probably stronger than is at first apparent, given that Thameslink is the only current bid prospect, while Go-Ahead is more dependent on rail income than any of its peers. However, it has the opportunity to rebid existing franchises before 2014.”

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