Liberum cuts Stagecoach and upgrades Go-Ahead on bus valuation

Shares in Southern Rail owner Go-Ahead Group were lifted, while those in Stagecoach slipped lower on Thursday as broker Liberum shifted its stance on UK public transport operators.

Liberum upgraded Go-Ahead to 'buy' from 'hold' as the valuation traded at a discount to the bus division alone, with the dividend yield also looking attractive.

But Go-Ahead's target price was cut to 1,975p from 2,100p as analysts remained cautious on rail -- and the Govia Thameslink franchise in particular -- and were a new caution on the London bus business due to a read-across from Stagecoach's wage pressures and heightened competition.

Stagecoach was downgraded to 'sell' from 'hold' and the TP trimmed to 185p from 215p in spite of tentative signs of stabilisation in revenue trends, as risks were not felt to be reflected i nthe valuation.

"The group continues to face both short-term trading pressures and long-term structural challenges across all of its businesses," analyst Gerald Khoo wrote, also cut his earnings estimates again.

"The East Coast rail franchise remains a material negative for the investment case, despite potential scope for contract amendments," he said, believing that is "increasingly unlikely" the company will be able to deliver a self-help turnaround in revenue growth and profit at the franchise.

Khoo kept his 'buy' recommendations on top pick FirstGroup and National Express, with both deriving the bulk of their earnings from non-UK operations, "benefitting from diversification, limited exposure to a still uncertain UK economic outlook and currency translation tailwinds to earnings".