Go-Ahead Gains Most Since 2008 After London Rail-Bid Victory

Go-Ahead Group Plc won a contract to operate an expanded London rail franchise that will be Britain’s biggest ever with more than 280 million commuter journeys a year, sending its shares to their sharpest gain since 2008.

Go-Ahead will run the Thameslink, Southern, Great Northern franchise for seven years from September, the Department for Transport said today in a statement. The award comes as a blow to FirstGroup Plc, which had operated much of the network.

“With the new trains, connections and capacity involved this can be transformational,” Go-Ahead Chief Executive Officer David Brown said in an interview. The award envisages a 3 percent margin on the contract’s net current value of 6.8 billion pounds ($11.5 billion), or about 200 million pounds.

Thameslink will operate three new fleets of electric trains on north-south commuter routes stretching from Kings Lynn on the North Sea to Brighton on the English Channel. The network will carry 24 trains an hour in each direction between London’s Blackfriars and St Pancras stations following 6.5 billion pounds of infrastructure enhancement.

Extra Seats

Go-Ahead, which bid with the Keolis unit of French state rail operator SNCF, rose as much as 13 percent, the the biggest intraday advance since June 19, 2008, and closed 9 percent higher at 2,113 pence in London, valuing the Newcastle upon Tyne-based company at 908 million pounds.

FirstGroup, which previously ran the Thameslink and Great Northern components of the new franchise, fell 5 percent before closing 1.3 percent higher at 136.50 pence.

Stagecoach Group Plc, which also bid and whose South West Trains business was previously Britain’s biggest by passenger numbers, slid 1.1 percent and closed unchanged at 378.50 pence.

An extra 1,400 railcars will be added to the new network, boosting capacity by 50 percent, with 10,000 more seats each weekday during the morning peak by 2018. That will help cater for a forecast 40 percent gain the number of annual passenger journeys to 390 million by the end of the contract in 2021, according to Peter Wilkinson, the DfT’s franchising director.

So-called farebox revenue, generated from pay customers, is projected to increase from 1.1 billion pounds to 2.3 billion pounds, with employee numbers remaining at about 6,400.

Siemens Order

“New state-of-the-art trains, more seats, better connections and improved stations will transform travel across London and the Southeast,” Rail Minister Stephen Hammond said, adding that operating unit Govia, which already runs the Southern arm of the franchise, must cut delays by one-fifth.

New vehicles include almost 1,200 electric carriages being built by Siemens AG for delivery in 2016-2018 under a 1.6 billion-pound contract. More than 100 cars will also be ordered for the Gatwick Express airport service, together with 150 for the route north of Moorgate in the City financial district, with tenders likely to be issues next week according to Brown.

Stations served by the expanded franchise include Peterborough, Cambridge and Bedford to the north and Southampton in the south. The network will connect with the new east-west Crossrail line at Farringdon.

Because of the size and complexity of the network, Go-Ahead will run it under a management contract rather than take on full commercial risk as is the practice for most other U.K. rail awards. Brown said a key element of the challenge will be to minimize disruption during upgrade work including a rebuild of London Bridge station, one of Britain’s busiest.

FirstGroup said in a statement it was disappointed not to have won the contract after submitting a “strong bid” and improving service on parts of the franchise it ran. CEO Tim O’Toole said the company will continue to bid for rail work.

Stagecoach said its plan would have provided good value and that it will seek feedback from the DfT on the decision. MTR Corp. of Hong Kong and Dutch state railway Abellio, also shortlisted for the contract, didn’t immediately comment today.

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