Suspension of Shares Embarrassing, Southeast Rail Saga Serious | Nils Pratley

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TAs it turns out, the most important part of Go-Ahead’s annual accounts last year was buried on page 188. Footnote 27 gives brief details of a dispute with the Department of Transports regarding previous profit sharing calculations on the South East rail franchise, where Go -Ahead held a 65% stake in partnership with the French company Keolis.

The feud sounded dry, technical, and the sort of thing that pops up from time to time on the railroads. The accounts confidently claimed that if the DfT’s claim were to prove successful, “the outflow of resources could be in the order of £ 8million”.

The little problem, however, just keeps getting worse. In September, the DfT dispossessed Southeastern of the franchise and accused the company of a “serious” breach of the franchise agreement. Go-Ahead apologized and said £ 25million – a much larger sum – had been returned.

Now comes another creeping admission of “serious errors” as well as the news that the autopsy of both parents on the events is so complex that the auditors, Deloitte, need more time to finalize this year’s accounts. One uncertainty is how to estimate the amount of provision for the fine that the DfT will almost certainly impose.

The delay means Go-Ahead will miss its deadline for filing accounts this year, in turn causing a stock trading suspension on Jan. 4, embarrassment for a state-owned company. No investor likes to be stuck in the sidings, so you can see why stocks have reversed by 15%. The stock is now at its lowest level in 20 years.

The main way things could get worse for Go-Ahead is if the DfT decides to cut the remaining Thameslink franchise, a major suburban route. It seems unlikely since the failures are only for the Southeast, but the board has some explanation for when the accounts do eventually appear, which should be before the end of January. This saga concerns the financing of taxpayers from 2014 and its seriousness seems to have been underestimated in series.

After a scare Rolls-Royce continues to roll in the right directions

It’s not exactly a triumph, but it’s a milestone: Aircraft engine maker Rolls-Royce, a company that fell victim to Covid via the air travel collapse, is no longer burning money every quarter. Between July and September, there was an influx.

The net tally for all of 2021 will still be an outflow of £ 1.6bn, but 2022 is expected to be positive. The effort involved £ 1bn in cost cuts, 8,500 job losses and massive refinancing, but now the turnaround program can be said to have done what it was meant to do. The reels can stay aloft even when “engine flight hours”, a key contractual measure for revenue, is still only half of the 2019 level.

A few weeks ago, the news may have given new wings to the rally in Rolls’ shares which was fueled by the reopening of transatlantic air routes. Instead, Thursday’s 3% drop was a case where investors wondered if Omicron would cause a new close.

No wonder CEO Warren East was keen to express the idea that Rolls was now a “balanced” company. He has a point. The civil aerospace sector receives about 90% of the attention but, in its newly shrunken form, only makes up about a third of the group. Meanwhile, the defense side has, as might be expected, weathered the crisis and won major work to modernize the engines of the US Air Force’s B-52s. The Power Systems division is struggling to tackle semiconductor chip shortages, but the order book is strong.

Then there’s the new hope for wealth from small modular reactors, a company that East says may one day be bigger than today’s Rolls-Royce set. This projection is a bit of a dream since the kit for mini nuclear power plants is still at the evaluation stage, but it is a reminder that Rolls works on extremely long cycles. After a scare, he seems to be going in the right direction.

Imperfect pricing

You get thrills and spillovers with IPOs, but two of this year’s hottest crops in the retail industry have settled near their floating prices. Dr Martens, the startup company, and Moonpig, the online greeting card company, reported some pretty good numbers on Thursday and both are just above their starting prices (4% and 7% respectively).

The same can’t be said of Made.com, which issued a profit warning. Supply chain disruptions and port blockages disrupted a business model that relied on just-in-time orders, including from factories in Vietnam. Up to £ 45million in revenue, or 10% of the total, has been pledged next year.

Cue another year of losses in 2021, instead of the expected shift to profitability. This is the other reason why stocks are now 40% below their quoted price. At £ 775million at launch, but no profit under his belt, Made had a price tag for perfection.


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