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Go-Ahead drops 5% on worries about future bus and rail prospects

Go-Ahead shares have hit the buffers despite an 11% rise in full year profits, boosted by good performances at both its bus and rail businesses.

It expects to benefit as car owners increasingly turn to public transport thanks to high petrol prices- although commuters on already crowded trains across the whole rail network may not relish the prospect.

And despite a dip of 1.3% in London bus revenues during the year, it expects a pick up from now on, helped by the addition of a number of new routes. As for rail, it said it was hopeful of winning the Greater Anglia franchise when the Department of Transport makes its decision next month.

But its shares have slumped 84p to £14.99, a 5% decline which makes it one of the biggest fallers in the FTSE 250.

Analyst Paul Hickman at Peel Hunt said the results were just about in line with expectations, with profits of £97.6m and earnings per share of 135.2p, but the company’s outlook was more uncertain, with the Southeastern rail franchise due to expire in 2014 and London Midland in 2015. Hickman said:

The main reason for holding the stock is the 5% yield, backed by a strong balance sheet. But prospects are dependent either on long-promised bus acquisitions or on replacing expiring rail franchises, without which we now forecast a 4% earnings decline in 2012. Given those uncertainties, the stock is not cheap.

Go-Ahead needs success in either its bid for Greater Anglia or bus company acquisitions to sustain scale.

Meanwhile Shore Capital cut its recommendation from buy to hold, with analyst Karl Burns saying:

Go-Ahead has outperformed with FTSE All Share by 20% over the last 3 months and 44% over 12 months, and whilst we believe its UK bus operations are in a strong position for 2012, we believe UK rail may see a more difficult 2012, with volumes likely to come under pressure from higher fares and unemployment on all franchises and furthermore, a reduced level of cost savings. In particular, the Southern franchise remains ‘at risk’ from a slowdown given it retains no revenue protection on the downside until 2015, albeit the franchise remains slightly ahead of bid assumptions. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds