Liberum upgrades Go-Ahead to 'buy'

(ShareCast News) - Liberum upgraded Go-Ahead Group to 'buy' from 'hold' but trimmed the target price to 2,740p from 2,860p.It said the market's overreaction to the group's recent trading update presented a buying opportunity."The halving of long-term margin guidance at the GTR rail franchise and the potential for a narrow miss of the £100m bus profit target were disappointing. However, the share price reaction exceeded any reasonable assessment of value reduction," the brokerage said.Last week, Go-Ahead warned that its 65%-owned Govia Thameslink Railway joint venture - which operates the Thameslink, Great Northern, Southern and Gatwick Express services - would suffer this and next year.The company said that while margins at GTR are expected to improve in the longer term, it no longer expected to recover profit shortfalls as a result of a "very challenging performance and industrial relations environment"."As a result margins, on an adjusted basis, over the life of the contract are now more likely to be nearer to 1.5% than the 3% previously expected," said chief executive David Brown.But Liberum said this does not change Go-Ahead's market positions, robust balance sheet or strong cash generation.In addition, it said that while anticipated contract life average margins of 1.5% are disappointing, the franchise remains profitable and cash generative.At 0917 BST, Go-Ahead shares were down 0.6% to 2,048p.