So we’re in improving times for travel firms, are we? Not for Go-Ahead Group (LSE: GOG), it seems. The bus and rail operator announced Tuesday that it has lost its Southeastern rail franchise. The Go-Ahead share price rapidly plunged 20%+ as a result.
The company told us that the Department for Transport (DfT) “has chosen to appoint the Operator of Last Resort to take over delivery of passenger services on the Southeastern franchise from 18 October 2021, when our existing agreement expires.”
Back in August, Go-Ahead announced a delay to the release of results for the year ended 3 July 2021. The firm told us it “reflects ongoing discussions with the Department for Transport regarding the historic calculation of the Southeastern profit share over a number of years.”
Potential financial penalty
With the latest news, the date is being put back further. Provisionally expected on 30 September, the new date has yet to be announced. Go-Ahead told us, rather ominously, that the “results for the year ended 3 July 2021 (including the expected provisions related to the matters under discussion with the DfT but excluding any potential financial penalty) remain in line with the Board’s expectations.”
What are the details? The government puts its action down to a “a serious breach of good faith” on the part of Go-Ahead. Transport secretary Grant Shapps said that the company had failed to make £25m in historical payments due to the DfT.
Go-Ahead says it has now repaid that £25m. But things appear to be far from resolved. According to a Transport Select Committee quote given to the BBC, there’s a possibility that the Serious Fraud Office will become involved. That “potential financial penalty” spoken of by the company might have me a little worried were I a shareholder right now.
Debt and profits
We’ve seen the immediate effect on the Go-Ahead share price. But the big question is, what difference does this really make to the company as an investment possibility? Well, it wasn’t the solo owner of the Southeastern franchise. No, that was run by a joint venture between Go-Ahead and Keolis. So we’ll have to wait to discover where the finger of blame eventually points.
The pandemic hit Go-Ahead hard. But the interim debt situation didn’t look bad. An adjusted net-debt-to-EBITDA figure of 1.87x was well within its target of 1.5x to 2.5x. I in the circumstances, I think that’s fine.
The company’s profit breakdown is telling too. It posted an adjusted H1 operating profit of £56.1m. Of that, only a relatively small £6.5m came from rail operations, with the rest from bus services. Rail operations disproportionately suffered from travel restrictions, but we’re still looking at a relatively small portion of Go-Ahead’s business.
Go-Ahead share price future?
Perhaps ironically, I reckon Go-Ahead was looking like a decent prospect for a recovery investment prior to this bombshell. And I think I would have been tempted to buy had I examined it earlier.
Has the market overreacted? Will the Go-Ahead share price pull ahead over the next 12 months? With my dislike for risk, I will await the resolution of the latest unknowns before I decide.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.