TThe conventional way for a company to divest itself of a railroad franchise is to massively oversold and inflict such misery on shareholders that it is cheaper to lose the support bond and force the government’s hand. Alternatively, making life hell for passengers is very occasionally noted by the Department for Transport (DfT).
Go-Ahead has therefore produced a rarity. Its 65% Southeast operation, where customer satisfaction metrics have been better than most, has been nationalized due to “a significant breach of the obligation of good faith within the franchise agreement,” specifically the insufficient disclosure of a sum of “more than £ 25m”.
That was the dramatic description of the events that the government made. Ahead alleged a genuine mistake, apologized, said he returned the money and added that his CFO, who used to be in charge of the numbers at Southeastern, had resigned. The versions of complicity versus concealment have yet to be reconciled.
What can be said is that Go-Ahead, when it first alerted its shareholders to this dispute, did not expect what happened now. Note 27 on page 188 in last year’s accounts summarized what seemed like a technical matter related to past profit sharing calculations and stated confidently: “If the Secretary of State’s notification for transportation is successful, then the outflow of resources could be of the order of £ 8m “.
That estimate was spectacularly wrong, and the question now is whether £ 25 million and getting laid off in Southeastern is the end of the matter. The partners’ other rail franchise, GTR, which includes Thameslink, is not affected. On the other hand, the government kept the pot simmering, warning that investigations are continuing and that “more options for law enforcement would be considered.”
Under the circumstances, the 25% drop in Go-Ahead’s share price seems right. The drop exaggerates the importance of Southeastern to a group with more exposure in the UK to buses, but reflects the impact. Go-Ahead, under the direction of CEO David Brown, always seemed like the geekiest of the major trucking companies and the least likely to find itself in this mess.
A new CEO, Christian Schreyer, arrives from Germany in November, just as the old franchise model for the railways is being dismantled. His first job is to find a way to curb the dispute with the government. If the price is Go-Ahead’s total exit from UK railways, meaning it’s not far behind for new low-margin management contracts, investors probably wouldn’t mind. There are always too many surprises on the railways.
Investors in Wise, the cross-border money transfer business that made a £ 9bn stock market debut in July, would have been dissuaded had they known that the company’s founder and CEO, Kristo Käärmann, is the one. the type of person who forgets to pay a £ 720,000 personal tax bill to HMRC?
Most wouldn’t, he suspects. Wise, formerly Transferwise, is a nifty technology company that is chipping away at the traditional dominance of big banks in a large international transfer market. Investors might even have been amused that a boss who says Wise exists to save banks’ margin fees to its clients could be so disorganized that it allows £ 365,000, HMRC’s resulting late filing penalty for the fiscal year. 2017/18, slide on the back of the sofa.
However, the question is whether the confrontation with HMRC should have been disclosed in the listing prospectus. Of course it should have been. The revelations are meant to be pedantic to the extreme. Yes, most investors wouldn’t mind one iota, but that’s up to them. It is not impressive.
Gas doesn’t matter, what about oil?
While we watched every most recent surge in the gas market, oil prices have also skyrocketed. On Tuesday, a barrel of Brent traded above $ 80 a barrel for the first time in three years, a fact that has little to do with queues on the UK esplanades.
Rather, it is a story of growing global demand, with the United States and China in the foreground, plus supply cuts and low inventory levels almost everywhere. Last year’s drop to $ 25 a barrel, and the brief glimpse of negative prices, is felt a long time ago.
At $ 80, according to analysts’ forecasts just a few months ago, the world should be experiencing a touch of “demand destruction” to offset higher input prices. There are still few signs of that. If the Bank of England seems more confused than usual about the inflation outlook, it cannot be blamed. Petroleum, if you go up much earlier, you have the potential to upset most assumptions.