Go-Ahead shares plunge on Thameslink rail network problems

LONDON (Reuters) - Transport group Go-Ahead (GOG.L) warned that margins on its largest British rail contract would be only half what it had expected because of disruption caused by track and station upgrades and strikes, pushing its shares down by 17 percent.

Go-Ahead said on Tuesday that the Govia Thameslink Railway (GTR) franchise, a partnership in which it holds 65 percent alongside France's Keolis, would now produce margins nearer to 1.5 percent over the life of the seven-year contract, compared to the 3 percent margin it previously expected.

The company, whose rail services carry about a third of all passengers across Britain, said it was affected by a programme to rebuild London Bridge station.

The central London station is at the heart of the services it runs connecting London to Brighton and Gatwick Airport in the south. Its contract also includes lines to commuter towns north of London, the eastern university city of Cambridge and the southern ports of Portsmouth and Southampton.

"While we do expect margins to improve in the longer term; given the very challenging performance and industrial relations environments, we no longer expect to recover the profit shortfalls," Chief Executive David Brown said in a statement.

Govia has also been affected by conductors on the Southern rail network, who in April held strikes over a plan to bring in trains with doors operated by drivers. In February, it had warned of higher than forecast investment in the network.

The downgraded forecast wiped almost 200 million pounds off the company's market capitalisation, sending shares down to trade at 2034 pence by 1200 GMT, their lowest level for two years.

Govia started running the GTR network, the largest rail franchise in the UK in terms of passenger numbers, trains and revenues, in 2014.

Jefferies analyst Joe Spooner called the margin downgrade disappointing but said the impact was contained, adding that the warning could raise questions about the nature of rail contracts which are awarded by the government after a competition.

"There are undoubtedly discussions to follow around the competitive conditions in the bidding market and the terms groups are feeling compelled to offer to secure new contracts," he said.

Separately on Tuesday, rival British-based transport group First Group (FGP.L), which as well as running buses and trains in Britain also operates school buses and coaches in the U.S., posted better than expected profit, pushing its shares up 4 pct.

(Reporting by Sarah Young; Editing by Keith Weir)