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tThe conventional way for a company to be stripped of a rail concession is to overbid en masse and cause shareholders such misery that it is cheaper to lose the backing bond and force the government. Alternatively, the Department for Transport (DfT) is very occasionally noted that it makes passengers’ lives miserable.
Go-Ahead has therefore produced a rarity. The Southeastern operation, which is 65% owned, where customer satisfaction metrics were better than most, has been nationalized due to a significant breach of the good faith obligation under the franchise agreement, notably the underdeclaration of more than $25 million. .
That was the dramatic description of the events by the governments. Go-Ahead pleaded for a genuine mistake, apologized, said it had refunded the money and added that the chief financial officer, who used to be in charge of figures at Southeastern, had resigned. The versions of cock-up versus camouflage have yet to be reconciled.
What one can say is that when Go-Ahead first alerted its shareholders to this dispute, it did not expect what has happened now. Note 27 on page 188 in last year’s accounts summed up what sounded like a technical issue related to previous profit-sharing calculations and stated confidently: If the Secretary of State for Transportation’s notification proves successful, the outflow of funds could be close to could be 8 million.
That estimate was spectacularly wrong, and the question now is whether 25 meters and being fired in Southeast is the end of the matter. The partner’s other rail franchise, GTR, of which Thameslink is a part, remains unaffected. On the other hand, the government kept the pot boiling by warning that investigations continue and further options for enforcement action would be considered.
Given the circumstances, the 25% drop in Go-Aheads’ stock price seems about right. The drop overstates the importance of South East for a group with more exposure to buses in the UK, but reflects the shock. Go-Ahead, under chief executive David Brown, always seemed like the geekiest of the big haulage companies and the least likely to get into this mess.
A new director, Christian Schreyer, will arrive from Germany in November, just as the old railway franchise model is being dismantled. His first task is to find a way to end the feud with the government. If the price is Go-Ahead’s full exit from UK railways, meaning it’s not hanging around for the new low-margin management contracts, investors probably wouldn’t care. There are always too many surprises on the trail.
Unwise judgment?
Would investors in Wise, the cross-border money transfer company that made a stormy $9 billion stock market debut in July, have been put off if they’d known that the company’s founder and CEO, Kristo Krmann, is the type of person who forgets to pay a 720,000 personal tax bill? to HMRC?
Most don’t, one suspects. Wise, formerly Transferwise, is a slick tech company that is breaking out of the traditional dominant position of major banks in a large international transfer market. Investors may have even been amused that a boss who says Wise exists to save his clients for banks could be so disorganized that he slips 365,000 HMRC’s resulting late filing fine for the 2017/18 tax year off the bank.
The question is, however, whether the run-in with HMRC should have been disclosed in the stock market prospectus. Of course it should have been. The revelations are meant to be pedantic for a mistake. Yes, most investors wouldn’t be bothered by it, but that’s up to them to decide. Not impressive.
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Never mind gas, what about oil?
While we kept an eye on the latest rise in the gas market, oil prices also bubbled up. On Tuesday, a barrel of Brent traded above $80 a barrel for the first time in three years, a development that has little to do with queues at UK petrol stations.
Rather, it is a story of rising global demand, with the US and China at the forefront, plus supply cuts and low inventory levels almost everywhere. Last year prices fell to $25 a barrel and the short sight of negative prices seems long ago.
Analysts’ forecasts from just a few months ago say the world should experience a whiff of demand destruction at $80 to offset higher input prices. There is still little to notice. If the Bank of England sounds more confused than usual about the inflation outlook, you can’t blame it. If oil moves much higher soon, it could overturn most assumptions.
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Sources 2/ https://www.theguardian.com/business/nils-pratley-on-finance/2021/sep/28/the-southeastern-train-arriving-on-platform-3-is-25m-late The mention sources can contact us to remove/changing this article |
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