Go-Ahead Group PLC (LON:GOG) and Stagecoach Group PLC (LON:SGC) have been upgraded to ‘buy’ from ‘hold’ by analysts at Liberum, who said share price weakness amid the “unprecedented uncertainty” of the coronavirus pandemic created “potential opportunities” in the public transport sector.
While public transport volumes had “collapsed” in the face of public lockdowns and movement restrictions to combat the virus, Liberum said in a note that contractual revenues in the sector have been “more resilient” and cost bases had proven “more flexible than expected”.
“This reflects self-help measures, customer support and announced government support, including industry-specific measures”, Liberum said, adding that they expected all four of its covered companies in the sector to have “minimal cash burn at worst through the height of the current crisis”.
For Go-Ahead, which also had its target price cut to 1,500p from 2,000p, Liberum said the company was “the lowest risk” as “around 90% of its revenue is now covered by non-revenue risk contracts, and we anticipate UK government support for the regional bus industry to de-risk the remainder”.
“Just as importantly, the low level of passenger revenue risk means its revenues are more likely to rebound fully once the crisis has passed”, the broker added.
Stagecoach also saw its target price reduced to 125p from 135p alongside FirstGroup PLC (LON:FGP), which was cut to 120p from 160p, and National Express Group PLC (LON:NEX) which was lowered to 400p from 480p to reflect what Liberum said was to “reflect the short-term impact from the [coronavirus] crisis”.
Go-Ahead shares jumped 8.3% to 1,088p in mid-morning trading on Tuesday while Stagecoach climbed 9.2% to 83.5p.