Go-Ahead derailed by the soaring cost of train deal
THAMESLINK operator Go-Ahead
Group took a battering as the bluechip index fell below the 6000 mark to close at its lowest level in three months.
Shares in Go-Ahead collapsed 18pc, or 438p to 1995p after the business said in a unscheduled trading update that its contract to run the Govia Thameslink Railway (GTR) franchise would be less profitable than expected.
Go-Ahead runs the GTR franchise – which includes the Thameslink commuter service from Brighton to London, the Great Northern service from London to King’s Lynn and the Gatwick Express – with French state-owned partner Keolis.
They agreed to be paid a flat fee by the Government of about £8.9bn and started running the services in 2014. However, Go-Ahead said yesterday that hiring and training hundreds or train drivers, buying new trains and installing free WiFi at GTR would cost more than anticipated. So, profit margins are expected to halve from the forecast 3pc to 1.5pc for the contract’s duration to 2021.
One market observer said: ‘At the moment, the market is not taking any prisoners when it comes to profit warnings and earnings downgrades.’
The negative sentiment also hit rival bus and train operator Stage
coach, which runs the East Coast, South Western and East Midlands rail franchises. Stagecoach shares shed 5.5pc, or 13.7p to 234.5p.
FirstGroup, though, bucked the trend and put on 6pc, or 6.2p to 109.3p following results that showed a turnaround plan at the company is gaining momentum.
Comments from the business about a ‘significant growth in cash generation in the coming year’, ignited speculation the company might restore its dividend.
Overall, it was a torrid day in the wider market amid renewed fears about the outcome of next week’s Brexit referendum.
The FTSE 100 plunged 2pc, or 121.44 points to 5923.53 after a survey by TNS gave the ‘Leave’ campaign a significant lead.
European markets had an even worse day, with France’s CAC 40 closing down 2.3pc.
Stocks out of favour included those companies, such as housebuilders, likely to be hit by a vote to leave the European Union.
Barratt Developments lost 3.7pc or 20p to 516.5p while Berkeley
Group – which has been heavily shorted by hedge funds in recent months and is expected to release annual results today – gave up 4.2pc or 130p to 2990p. In the FTSE 250, Crest Nicholson dived 7pc, or 39.5p to 520.5p.
Mining companies were dumped by dealers as some base metal prices, such as copper, came under pressure. Anglo American took the wooden spoon, declining 5.7pc, or 35.9p to 599.5p. Antofagasta wasn’t far behind, dipping 5.3pc, or 22.1p to 394.5p.
Sky fell for a second day in a row, sliding 4.6pc, or 41.5p to 850p, despite a big push from Goldman Sachs, which tipped the stock as a takeover target. Equipment hire company
Ashtead was the only blue- chip share to finish in positive territory. Its shares put on 2.9pc, or 28.5p to 985.5p following better- thanexpected results, which showed the company’s profits before tax beat market expectations by about 10pc.
Investors also warmed to Ashtead’s decision to announce a £200m buy-back for 2016-17. Among the smaller companies,
Ocado endured another difficult day, slipping 2.9pc or 6.6p to 217.7p. Heavyweight brokers Deutsche Bank and JP Morgan both crossed disclosure thresholds, suggesting banks are acquiring stock from long-only sellers for hedge fund clients to short.
Ocado shares have almost now lost more than half their value in the past year. On a more positive tack, Ted
Baker’s shares climbed 8.5pc, or 198p to 2523p after the company reported double- digit revenue growth this year thanks to an increase in online sales.