Is Go-Ahead Group plc An Overlooked Rising Star?

go-ahead-group-Travel firm Go-Ahead Group (LSE: GOG) was one of the FTSE’s top risers this morning, with a 90p (4%) rise to 2,363p in early trading.

In fact, it’s been a bit of a dark horse of late, with a 60% rise over the past 12 months — and it’s up 80% over two years.

Successful year

Today’s price hike was driven by the release of full-year results for the year ended 28 June, which the company described as a “significant and successful year“. So what’s been going right for the rail and bus operator?

Profit before tax and exceptional items rose by 25% to £79.1m, with adjusted earnings per share (EPS) up 26%, in a year that saw record numbers of passengers in both the firm’s rail and bus operations — presumably helped by Go-Ahead’s 92% customer satisfaction in its deregulated bus activities, the highest in the sector.

Another boost came from winning the UK’s largest rail franchise, Thameslink, Southern and Great Northern.

Free cash

On top of that, and even though the company has increased its investment in its business, Go-Ahead was able to report strong free cash flow and upped its full-year dividend by 4.3% to 84.5p per share “in line with progressive policy“.

Chief executive David Brown sounded positively excited, telling us that the results were ahead of expectations, that the firm had reached “the halfway point towards our bus operating profit target“, and that he is “confident in our ability to achieve £100m of bus operating profit by 2015-16“.

Despite that soaring share price, the dividend still represents a 3.6% yield, which is comfortably ahead of the FTSE 100 average — and if you’d bought Go-Ahead shares a year ago at around 1,475p, you’d actually have enjoyed a yield of 5.7% on the price you paid.

The shares aren’t on too stretching a P/E valuation either. The year did end on a P/E of 16, which is a bit above the FTSE’s average of 14, but forecasts for June 2015 bring that down to 14 again. And that’s based on an EPS rise of a modest 10% — after today’s results, my money would be on 2015 beating expectations again.

More to come?

With economic growth resuming, people do seem to be getting out and about again, which is clearly good news for the travel sector. And with that profit target that the company seems very confident of, Go-Ahead looks like one of the better ones to me — I’d say it’s been a bit of an overlooked star over the past couple of years, and still has plenty of potential.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.