Go-Ahead set to remain under pressure amid passenger slowdown

A Southern Railway train. Photo: Dominic Lipinski/PA Wire

A Southern Railway train. Photo: Dominic Lipinski/PA Wire - Credit: PA

The group behind strike-hit Southern Railway is set to remain under pressure this week following a predicted passenger slowdown on its Southeastern network.

Go-Ahead Group will update the market on Thursday after warning earlier this year that weaker economic growth will take its toll on the passenger levels of some services.

Rail profits are also expected to take hit during the current financial year after its failed bid to re-secure the West Midland rail franchise.

Go-Ahead, which ran the service through its Govia Thameslink Railway (GTR) joint venture with French firm Keolis, saw the Department of Transport hand the contract to a consortium made up of Abellio, East Japan Railway Company and Mitsui Co.

While annual profits also dropped in September, chief executive David Brown has insisted the firm’s performance for passengers was improving after cutting cancellations by 75%.

Shares in Go-Ahead dropped 6% after the announcement and have fluctuated throughout October and November.

HSBC analyst Joe Thomas said shares were “treated harshly” after its full-year results.

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He said: “While we cut our forecasts after the FY results we are not unduly concerned.

“And, from the perspective of rail franchising, we are more optimistic about Go-Ahead than we are about others in the sector:

“Problems in its most important legacy rail franchise (GTR) now appear to have been defused, which means the group can look forward to benefiting from the lower risk future rail franchises.

“This starts with the Southeastern franchise, where it is already the incumbent operator.”

The transport giant announced in September that pre-tax profits had dropped 5.7% to £136.8 million for the year to July 1.

Rail earnings also tumbled by 16% to £59.9 million, with the continuing industrial action and service woes on Southern seeing GTR suffer a 3.9% drop in passenger journeys and a 4.1% drop in revenues.

Mr Thomas added: “Aside from rail franchise wins, the group does look short of growth opportunities.

“As such, we were encouraged to hear that management has a target of generating 15-20% of group profit within five years.

“Given the absence of detail around this, we aren’t sure why it made this commitment at this stage.

“However, it does perhaps suggest some potential growth avenues that are not currently captured in our model.”

Southern was ordered to pay for a £13.4 million package of improvements by the Government in July, which will see it fund 50 non-board supervisors and other projects to boost service levels.

The firm has been in a bitter row with unions over proposals for so-called driver-only operated trains, but GTR has also admitted it underestimated the impact of extensive railway improvement works.