Liberum downgrades Go-Ahead to 'hold'

Liberum has downgraded transport operator Go-Ahead to ‘hold’ from ‘buy’ and cut the price target to 2,100p from 2,440p, saying it now assumes no value or earnings from the Govia Thameslink Railway franchise.

Last Tuesday, the group, which owns 65% of the Southern franchise through GTR, reported a drop in first-half pre-tax profit as operating profit from the rail division slumped due to strike action, and it lowered its full-year expectations for the bus and rail divisions.

Liberum said the cut to the 2017 outlook on slower regional bus growth and extra rail costs was disappointing, but manageable.

“Higher capex, and hence net debt, has a bigger impact on our valuation. We are increasingly concerned that there may not be any value in the GTR rail franchise, with further execution challenges ahead. We now assume no value or earnings from GTR.”

The brokerage said Go-Ahead’s valuation remains underpinned by its bus divisions, but the upside potential is entirely dependent on either winning the replacement competition for the London Midland franchise or extracting value from the GTR franchise.

“We do not see this as a strong enough investment case to support a continued positive stance.”

At 0900 GMT, the shares were down 1.2% to 1,918p.