Investec downgrades Go-Ahead on weaker GTR outlook

Investec downgraded its stance on transport operator Go-Ahead to ‘add’ from ‘buy’ and cut the price target to 2,500p from 2,800p following the company’s full-year pre-close trading update.

The brokerage noted that while the outlook for full-year 2016 was broadly unchanged, the outlook for the GTR franchise margins was reduced.

GTR margins over the life of the franchise are now expected to be around 1.5% versus 3% previously, with the downgrade driven by ongoing additional expenditure to maintain service levels during periods of operational challenges and industrial disputes.

Investec cut its medium-term forecasts around 11-12%, almost entirely due to GTR. It now expects GTR to be marginally loss-making in FY17, reaching breakeven in FY18.

Still, the brokerage pointed out the performance elsewhere in the group has been robust, with the London bus business expected to have a strong end to the year, due in part to rail replacement services.

At 1110 BST, Go-Ahead shares were down 16% to 2,040.89p.