Go-Ahead shares have slipped back in a falling market, despite the transport group reportedly being well placed to win a bus contract in Singapore.
According to analysts at Jefferies, local press reports suggest two of the original 10 bidders for a second package of bus routes being tendered have dropped out due to quality reasons, with Go-Ahead apparently putting in the lowest priced of the remaining bids. The winner is due to be announced by the end of the year. Jefferies said:
Go-Ahead has submitted the lowest priced bid at S$498m (around £232m) for the 5-year contract (with possible two-year extension). That appears to be 6.5% below the low end of the range of competing bids (S$533m-S$631m or around £248m-£294m). Other bidders include Keolis, a joint venture of RATP Dev and Transdev and local competition.
Earlier this year, Tower Transit (UK subsidiary of Australia’s Transit Systems Group) won the Bulim contract (the first package of bus routes tendered in Singapore). Its bid was a close third lowest on price, but was assessed to rank best on the combination of quality and price. Singapore’s Land Transport Authority said greater weight had been given to quality. Go-Ahead was the highest bidder in the Bulim process and we assume learnt from the experience. As a group that emphasises quality of product, we assume that with the lowest pitched bid for this second package, it must now be well placed in this contest.
The contract being tendered is to operate 25 bus routes from the Loyang bus depot. The government will retain ownership of the buses, infrastructure and fare revenue and the winning operator will be paid to operate the services to specified standards. The contract will begin in the second half of calendar 2016. Crudely assume up to a 10% London margin (Singapore’s bus model is similar), and the Go-Ahead bid may represent up to around £4.6m per annum EBIT opportunity. That compares to [our estimated] group pretax profit at £112m for Go-Ahead in 2016 - so a helpful business to win.
But Jefferies said the greater significance of winning the contract would be as a credible start to extending the group beyond its established UK bus and rail activities.
Go-Ahead is currently down 14p at £24.56.
