Rail and bus operator Go-Ahead Group(LSE: GOG) is looking a bit erratic at the moment, with its Southern Rail franchise hitting the news for the wrong reasons. But there's a lot more to the company than that, as was emphasised by Thursday's trading update ahead of full year results due on 7 September.
Southern Rail passenger revenue should be up around 3%, with London Midland revenue up 4.5% and GTR revenue down 4.5%. The company expects regional and London bus revenues to be up around 1%.
A new 13-year rail contract in Germany, due to start operations in 2019, should deliver around EUR20m in annual revenue, and further international bids are in the pipeline, including one in Singapore which is due to be awarded later in the year.
At a price of 1,838p, the shares are up just 0.3% on the day, and at that level I think we're looking at a bargain -- it puts the shares on forward P/E multiples for this year and next of under nine. Some of that will be due to forecast EPS falls of 5% and 1% respectively, which look disappointing after two years of 20%-plus rises, but I reckon the reaction is overdone -- and I can't help seeing the 27% share price fall since November 2015 as providing us with a buying opportunity.
Dividends have continued to grow, and the share price slump has raised the predicted yield as high as 5.7% for this year. It should be around twice covered by earnings, so I'd expect it to be safe.
Go-Ahead was shouldering £287m in net debt at the interim stage, and that's what would concern me the most right now. It tempers the low P/E valuation a little, but I reckon Go-Ahead has a good longer-term future and a recovery should reward shareholders nicely.
If you want a company having a hard time, look no further than Fenner(LSE: FENR). It makes reinforced polymer products that are used in all sorts of industrial applications, but earnings have been in a bit of a slump -- we've seen a slide in EPS from 36.1p as recently as 2012, all the way down to just 8.4p last year.
And after a couple of years of being maintained, the dividend was finally slashed in 2016, from 12p per share to 3p.
As a result, the share price lost around 75% of its value between December 2013 and January 2016 to plunge as low as 94p. But since then, we've seen an impressive recovery to today's 299p, as analysts are finally seeing light at the end of the tunnel now the firm's restructuring plans are coming good.
Back to growth
There's a 73% leap in EPS on the cards for this year, with a further 19% pencilled-in for 2018, though with the share price picking up again we're still looking at a forward P/E of 21, dropping to 18 in 2018.
The dividend should be growing nicely again too, and though yields should only be around 1.5%, double-digit percentage rises would have it back to a decent level pretty soon if they can be maintained.
At the interim stage, the omens were good, with underlying pre-tax profit more than doubling to £16.5m and underlying EPS jumping from 2.9p to 6.3p.
I admit I'm still a little troubled by that relatively high P/E, but I reckon Fenner shareholders are looking at a profitable future.
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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. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.