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FirstGroup, Go-Ahead Group renew UK rail contracts

Last updated: 19:44 30 Mar 2020 AEDT, First published: 18:02 30 Mar 2020 AEDT

FirstGroup -  FirstGroup, Go-Ahead Group renew UK rail contracts

FirstGroup PLC (LON:FGP) and Go-Ahead Group PLC (LON:GOG) both dipped despite announcing the renewal of two rail contracts in the UK.

FirstGroup will continue operating Great Western Railway, which connects London to Wales and the West of England, until March 2023 with the potential to extend for another year.

READ: Government steps in to help rail sector as Stagecoach, FirstGroup, Go-Ahead drop guidance

The FTSE 250-listed transport company said revenue will be based on a forecast mechanism, which “eliminates the majority of the revenue risk”.

The service will see a range of improvements including extra services, flexible ticket products and new fleets.

Competitor Go-Ahead announced the renewal of the Southeastern franchise, which links London with Kent and parts of East Sussex, valid until October 2021 with option to extend until March 2022.

The new contract has arranged for revenue to be based on management fees rather than on passenger fares.

The management fee will be set at a maximum of 2% of Southeastern's cost base before the pandemic began, Go-Ahead said.

Both lines are currently running to provide transport for essential workers during the coronavirus outbreak.

Analysts at Peel Hunt said the contracts would have lifted First Group's operating profit by £20mln and Go-Ahead's by £10mln, though they suspended forecasts due to market uncertainty.

On Monday morning, shares in FirstGroup and Go-Ahead dipped 2% to 46.34p and 733p, respectively.

--Adds shares, analyst's comment--

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