What’s going on with the Go-Ahead share price?

The Go-Ahead share price collapsed after losing a rail franchise, but is this as bad as investors think? Zaven Boyrazian investigates.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Go-Ahead (LSE:GOG) share price is in a bit of a free-fall. Yesterday the stock plummeted by nearly 25% after a scandal was unveiled at the company. Once a big name in UK rail transport, the firm has fallen from grace following the loss of its Southeastern rail franchise agreement. So, what exactly happened? And is this sudden drop an opportunity to buy shares for my portfolio?

The collapse of the Go-Ahead share price

Since the privatisation of the UK rail networks in the 1990s, companies have been able to bid for a franchise to provide passenger transportation. And for a long time, Go-Ahead was responsible for around 30% of all journeys across the UK through its Govia Thameslink Railway (GTR) and Southeastern lines.

Yesterday, the government announced it would be taking control of the Southeastern railway services. An investigation uncovered the firm hadn’t declared £25m of taxpayer funding that should have been returned in 2014. This is a breach of contract, and consequently, Go-Ahead will no longer be operating Southeastern services as of 18 October.

Needless to say, that’s not good news, especially since Southeastern generated 26.8% of revenues last year. In other words, a quarter of the firm’s revenues are about to evaporate. And after 13 years of service, CFO Elodie Brian has resigned with immediate effect on the back of this scandal. With fears of the Serious Fraud Office potentially stepping in, seeing the Go-Ahead share price crash is hardly surprising.

What now?

As damaging as this situation is, it’s certainly not the end of the world. The company still has other rail operations to drive revenues, such as the previously mentioned GTR line, as well as its German and Nordic ventures.

Meanwhile, its Bus transport activities remain entirely unaffected. And according to the latest trading update, passenger volumes are recovering quickly. In fact, they have reached the highest point since the start of the pandemic. This is especially encouraging since these activities are responsible for 88% of the group’s operating profits. After all, the margins on a bus transportation network versus rail are significantly higher.

There is undoubtedly going to be a noticeable impact by the loss of the franchise. However, it might not be as bad as investors are currently anticipating when looking at profits. So, if it can scale up its bus operations, the Go-Ahead share price might still be poised for high growth moving forward.

The Go Ahead share price has its risks

The bottom line

It’s difficult to judge the direct impact of this situation without some solid numbers to look at. But the company has postponed the release of its 2021 annual results that were originally scheduled to come out tomorrow.

The Go-Ahead share price may be able to recover and climb higher over the long term. But for now, I’m going to keep it on my watch list until more information is available.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian 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.

More on Investing Articles

Investing Articles

Penny stocks to consider buying while their prices are this cheap

Some of the penny stocks I've been watching have already climbed above the 100p level. But I see potential in…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Revealed! One of the hottest growth, value, and dividend shares to buy today

This high-dividend, low-cost company is also one of the London stock market's most exciting growth shares, writes Royston Wild.

Read more »

Investing Articles

£20,000 in savings? Here’s how I’d target a £2,219 monthly passive income with FTSE 100 shares

Investing in FTSE 100 shares can be a great way to turn a regular investment into a life-changing passive income…

Read more »

Investing Articles

These are the most popular 2024 Stocks and Shares ISA picks so far

After a few tough years, it looks like the 2024 Stocks and Shares ISA season is getting off to a…

Read more »

Investing Articles

This FTSE 100 ETF may be the simplest way to become a stock market millionaire

Ben McPoland considers one very straightforward stock market investing strategy that could lead to a million-pound portfolio.

Read more »

Investing Articles

I’d buy 11,220 Legal & General shares for £200 a month in passive income

Our writer considers how much money investors would have to put into Legal & General (LON:LGEN) shares to target £2,400…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

These 2 magnificent FTSE 250 shares are on sale right now!

These FTSE 250 companies still look cheap, despite recent share price gains. Here's why our writer Royston Wild thinks they’re…

Read more »

Blue NIO sports car in Oslo showroom
Growth Shares

Down 36% in 2024, how low could NIO shares go?

The electric vehicle sector has seen some tremendous volatility in recent years, but what does the future hold for NIO…

Read more »