Broker snap: Panmure slashes Go-Ahead price target

Panmure Gordon has cut its rating for bus and train group Go-Ahead Group despite Thursday's results from the group exceeding its expectations, as the broker has concerns over the potential lack of earnings growth in the coming years. The broker no longer thinks the shares are a "buy", but with a dividend yield of 7.4% - which Panmure Gordon thinks is sustainable - they are certainly worth holding. Earnings growth may be hard to come by, though, Panmure analyst Gert Zonneveld thinks."Margins in London are unlikely to recover to previous highs, particularly if new contracts continue to have more challenging quality incentive targets and lower revenue per mile. Furthermore, the fuel duty rebate may come down as the government looks to cut expenditure, which would drive up fares and most likely result in some volume reductions, which could have a negative impact on profits," Zonneveld speculates. "Rail profitability may also struggle to improve, with London Midland possible heading for future losses and Southern requiring punchy revenue growth to maintain profit levels," Zonneveld adds.The broker's price target has been slashed from 1600p to 1200p.Elsewhere in the broking community, KBC Peel Hunt admits growth prospects for Go-Ahead's regulated passenger operations look uncertain, but thinks consolidation in the reregulated bus market will provide scope for future growth."With hardening London incentive targets and rail continuing to be affected by High Speed, it is the growth in deregulated services' passenger revenue, which we forecast at +4% this year, which should support profit," opines analyst Paul Hickman.With undrawn bank facilities of £177m, KBC thinks this firepower will be used on acquisition prospects in the deregulated market, where independent and municipal bus businesses are feeling the financial pressure.KBC is sticking with its "buy" recommendation and price target of 1300p.