Investors put the brakes on Go-Ahead

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Go-Ahead Group lost nearly a fifth of its market value yesterday amid a sell-off by investors spooked by the bus and rail operator's cautious outlook for the rest of the year.

Battling rising fuel costs and fears in the market that the operator of the Southern and South-eastern rail services will be hobbled by lower subsidies and an expected economic slowdown, the company reported an interim pre-tax profit of £45.2m – a slight, 3.6 per cent, drop on the same period last year. The company added that both turnover and earnings per share had increased and that the outlook was broadly strong.

"Frankly we surprised by the reaction. We're seeing very strong demand trends, particularly in rail," said the finance director Nick Swift. "All the indicators are very favourable for us."

Investors seemed more determined to focus on a still uncertain slowdown in the future, and the imminent expiration of its Southern rail franchise, rather than the company's numbers. Its shares ended the day down 17.5 per cent to close at 18.40p.

Mr Swift said the rail numbers were hit because the profit-sharing structure with the Government meant that its strong performance over the past six months increased the share going to the Government. Gert Zonneveld, an analyst at Panmure Gordon said: "We believe rail uncertainties are likely to hold back the shares in the foreseeable future. The rail division accounts for nearly half of Go-Ahead's clean operating profit and the potential negative impact of an economic slowdown, combined with the next year's expiry of its most profitable rail franchise means ... our recommendation is unchanged." The analyst has a "hold" recommendation on the stock.

Mr Swift said it was working on improving its Go West Midlands bus service, for which it recorded an £8m loss. It is also trying to turn around its air cargo and baggage handling business.