MARKET REPORT: Go-Ahead tracks higher after it lands multi-million-pound contract to continue running UK’s biggest rail network
Go-Ahead tracked higher after it landed a multi-million-pound contract to continue running the UK’s biggest rail network.
Go-Ahead shares rose 7.4 per cent, or 55p, to 798.5p, after the Department for Transport (DfT) awarded it a three-year agreement to run the Thameslink, Southern and Great Northern rail services from the start of April.
It will also cover the Gatwick Express airport link from London’s Victoria station.
On the right track: The award will bring some relief to Go-Ahead after it was slapped with a £23.5m fine
The award will bring some relief to Go-Ahead after it was slapped with a £23.5m fine by the DfT last week for its mishandling of the Southeastern railway franchise.
The company was stripped of the contract, which covers railways linking Kent and Sussex to London, in September last year after it was revealed it had withheld money owed to the taxpayer.
The incident caused the company’s shares to be briefly suspended in January as it was forced to delay its results as a result of the scandal. The contract, which can be extended for a further three years at the Government’s discretion, will see Go-Ahead’s joint venture Govia Thameslink Railway (GTR) paid up to £31.7m per year. Go-Ahead owns around two-thirds of GTR, with the remainder controlled by French transport firm Keolis.
The deal is part of a system of national rail contracts introduced by the Government after it scrapped 20 years of private rail franchises during the pandemic as passenger numbers plunged.
The agreements are tightly monitored and are designed to prevent profiteering which sparked criticism of the franchise system.
Analysts at broker Liberum said the revenue and cost risk from the contract was ‘extremely low’ and profits from the deal would be ‘broadly similar’ to the current rate.
Fellow broker Peel Hunt added that the deal provided ‘extremely low exposure’ to changes in passenger demand, a potential issue as the growth in home working has left commuter numbers struggling to return to pre-pandemic levels.
The FTSE 100 rose 0.2 per cent, or 15.97 points, to 7483.35 while the FTSE 250 gained 0.3 per cent, or 63.02 points, to 20956.21.
Markets recovered later in the session despite lingering anxieties over the war in Ukraine after President Biden threatened a Nato response if chemical weapons were used by Russia.
Worries about a possible escalation have been holding back the FTSE 100’s recovery to pre-war levels. However, retail stocks were supporting the blue-chip index yesterday with Next jumping 1.7 per cent, or 106p, to 6282p after analysts at French bank Societe Generale upgraded the stock to ‘buy’ from ‘hold’ but cut their target price to 7331p from 8630p. Sportswear seller JD was also on the ascent, rising 1.7 per cent, or 2.55p, to 150.2p despite bleak retail sales figures for February.
United Utilities said it expects inflation to curb its revenue growth. In a trading update, the water provider to the North West of England said its full-year revenue is expected to remain on track and grow by around 3 per cent.
But rising inflation, which this week hit 6.2 per cent, coupled with increasing operation costs will most likely offset the rise.
United Utilities said its underlying operating profit is expected to be broadly the same from a year earlier.
Shares were flat at 1065.5p.
Housebuilders were sent lower after JPMorgan cut target prices across the sector after flagging concerns about cost inflation.
Persimmon was down 4.4 per cent, or 96p, to 2096p, Taylor Wimpey lost 3.6 per cent, or 5p, to 132.35p, Berkeley fell 2.5 per cent, or 97p, to 3839p and Barratt Developments sank 3 per cent, or 16p, to 509.6p.