The operator of the troubled Southern rail franchise Go-Ahead (GOG) has warned that ongoing rail strikes could wipe up to £15m off full year profits. Industrial action has already left the group uncertain of up to £10m of this year's profits from its rail arm, and the two sides remains at an impasse in the dispute.
Analysts at Investec have cut their profit forecasts to reflect the continuing uncertainty, plus slower bus passenger volumes and anticipated higher insurance costs. The investment bank is now expecting group operating profit of £152.9m versus the £161.2m it has been predicting.
Unsurprisingly, the market is expecting the worst, sending the share price spinning more than 12% lower to £20.03.
Southern is run by Go-Ahead’s 65%-owned Govia Thameslink Railway (GTR) unit, alongside 35% partner Keolis.
In December, Go-Ahead warned the strikes will cause full year earnings to be lower than expected.
Rail operating profit is 35% lower at £26.9m for the first half. Strike action is not only disrupting the service, it is also preventing Go-Ahead from pushing through hoped-for operating efficiency measures.
Investec analyst Alex Paterson has reduced his share price target from £25.00 to £23.00. He has also taken the stock off his 'buy' recommendation list, not inconsequential given that the investment bank is one of Go-Ahead's financial advisers.
Paterson does point out that the first half results are roughly in line with expectations, aside from the very obvious GTR calamity, although he remains concerned about slowing bus passenger numbers.
