A headache for UK transport stock Go-Ahead (LSE:GOG) just turned into a full-blown migraine as the company announced it was again pushing back its results for the year ending July 3 2021. Bad news for shareholders as it means the shares will be suspended on 4 January.
The stock is certainly starting to look like a busted flush as the UK government has been forced to take over its Southeastern rail contract after the Go-Ahead admitted to “financial errors”, forcing it to repay £25m back to the government. There may also be a further fine on Go-Ahead from the UK Department of Transport.
Citigroup recently cut its price target on the share from 1450p to 870p, which is quite the slice in our view. Go-Ahead had reported volumes steadily rising in the first four months of fiscal 2022, but that was to be expected with more commuters returning to work after lockdowns in the UK. The company reported that between 70-80% of pre-pandemic journeys were being made on its bus services.
Go-Ahead share price continues to cough up value
The share price has been on a steady downwards trajectory since early April, from over £14 a share to now under £6. Shares have tanked further this week.
The company is obviously not just about Southeastern: as mentioned, bus routes are also a big contributor of revenues. It also has interests in both international bus and international rail operations. For example it works in the transport infrastructure in Dublin and in Singapore, as well as having franchises in Norway and Germany.
Time to get out or double down?
The news this week will not be greeted well be investors, of whom more below. For starters it comes as the UK contemplates a return to working from home, which will be a blow to any transport companies that were experiencing a return of commuter traffic to routes. Secondly, the news will also no doubt have other government contractors looking closely at the management style and policies of Go-Ahead. It will also make it tougher for the company to compere for new contracts. It is certainly turning into a week that CEO David Brown will be trying hard to forget.Jupiter Fund Management said it was holding a 5.04% stake in the group as of 22 October. Other shareholders in the company look like a who’s who of UK fund management, including a whopping 13% owned by Aberdeen Standard Investments and 9.9% by Columbia Threadneedle. Apart from Jupiter, Aberforth Partners is also in for 3.4% and Vanguard owns 3.22%.
What’s our view on Go-Ahead?
The stock is obviously getting cheaper all the time and at some point will turn into a contrarian buying opportunity for those who follow that kind of approach. If you get your timing right, there could be significant profits to be made, but the pandemic and the recent news probably has some more damage to inflict on the share price yet.
We note a forecast rolling PE ratio of 8 on Stockopedia and the fact that revenues have been trending up steadily (CAGR 3.93%), although we expect 2022 will be a trend breaker for this one. PEG was 0.085 in 2020, slipping to 0.062 on a rolling basis.
