Shares digital

by Rachel Robson

Despite market concerns about the potential impact of an economic slowdown on Go-Ahead’s performance, and the expected disposal of its Southern rail franchise, Goldman Sachs analyst Oliver Neal has upgraded the transport group from ‘neutral’ to ‘buy’.

However, at the same time he has reduced his price target from £24 to £20. ‘In our view its current valuation versus the sub-sector overstates the risks to profitability from higher fuel costs in 2008/09, and more than discounts the loss of the group’s Southern rail franchise, which is now in our forecasts,’ says Neal.

Goldman Sachs sees three potentially positive catalysts for the transport company over the next six months. For one thing, the ‘introduction of the nationwide concessionary fare scheme this month should boost bus passenger volumes and profits,’ says Neal. Second, the rail passenger growth during the company’s second half remains strong, which could exceed profit guidance for the current financial year.

Third, Go-Ahead and other deregulated bus operators are likely to raise fares above the rate of inflation this year and ‘thereby allay fears that profit margins are about to collapse.’

Goldman Sachs has also lowered its 2008/09/10 EPS estimates to 155.2p, 168.51p and 167.95p respectively, on the back of the disposal of Go-Ahead West Midlands, the loss of Southern and higher fuel costs.