Lime Street-Birmingham rail firm prompts transport shares rally

Jun 19 2008

Shares in transport companies jumped ahead today amid signs higher petrol prices have prompted more commuters to take buses and trains.

Go-Ahead, which operates trains between Liverpool and Birmingham, sparked the rally after it reported a pick-up in trading since April and forecast record results for the year to the end of this month.

The company said its bus division, which operates more than 3,600 vehicles, was trading well despite higher fuel costs, while it described the performance of its rail operations over the past two months as “excellent”.

The company said increased congestion and higher fuel costs for motorists, coupled with improved punctuality and service quality, had helped the rail arm, which operates the Southern, Southeastern and London Midland services.

It said: “As a result, we now anticipate delivering a full year performance ahead of our previous expectations in April and significantly ahead of our record results last year.”

Shares in the company rose by more than 16% today as analysts revised their forecasts ahead of annual results on September 5.

ABN Amro said it expected to increase its full-year profits forecast by at least £5 million to £114 million for the current financial year.

Shares in South West Trains owner Stagecoach, First Group and National Express also rallied following the update.

In the bus division, Go-Ahead said fuel prices had increased since April, resulting in a further net cost of around £1 million for the year. It has bought all of its requirements for the year to next June at 43p a litre, although it pointed out that fuel still represented a small part of its bus operation’s cost base at around 10%.

The company said it planned to recover the extra fuel costs through consumption efficiency and fare increases.

Go-Ahead said full-year like-for-like revenues growth for Southern and Southeastern was expected to be similar to the 13.2% achieved in the first half of the financial year. It also reported a strong start for its London Midland franchise, which it began operating in November.

The company said UK rail profits were now expected to be ahead of the £66.1 million achieved last year, having previously guided the market towards lower profits because of a decline in subsidies and higher profit share payments to the Department for Transport.

The company added that its aviation business - branded Aviance UK, Plane Handling and Reed Aviation - made progress with the results expected to be well ahead of last year. The division employs almost 5,400 people at 17 airports serving around 44 million airline passengers a year.