Go-Ahead is living up to its name. The full-year results yesterday from the bus and train operator show everything moving in the right direction.

All 12 of the businesses of the FTSE 250 company had an improvement in operating profits, which in aggregate rose 23 per cent on revenues up 20 per cent. The dividend increased by 16 per cent.

What those numbers fail to show is the trends that prompted Go-Ahead to raise profit forecasts in June have only got stronger. Growth in passenger numbers across all of its networks has accelerated over the past three months. Bus volumes were up 2.9 per cent for the year to June 30, but 4.9 per cent in the final quarter. Passenger numbers in its Southern Rail franchise show a similar turn of speed: up 6.1 per cent in the first half, but 7.3 per cent in the second.

Such virtues make it easy to overlook the fact that a better than expected 17 per cent jump in profits at Go-Ahead’s rail business was helped by a one-off £7 million cost settlement with Network Rail. Even without that windfall, the division is still trading ahead of forecasts.

The company’s fourth quarter neatly coincided with the period when oil-price inflation was at its fiercest, and when the incentive for drivers to abandon their cars for cheaper forms of transport was strongest. However, there is much evidence to suggest that, whether because of road congestion, environmental concerns or stubbornly high energy prices, “modal shift” – or a permanent change in people’s patterns of travel – is firmly under way.

Go-Ahead’s bus business was also boosted by the nationwide expansion in April of the concessionary fare scheme – especially given its presence in resort areas such as Bournemouth, Brighton and the Isle of Wight. However, even ignoring future fuel-price movements, demographics alone – for the first time there are more over60s than under16s in the UK – should ensure further growth.

Go-Ahead faces near-term challenges: the possibility of inflation-driven wage demands (labour accounts for two thirds of the costs of its bus division), a four-way pitch to hang on to its South Central franchise (a decision is due next spring), and, through its commuter services, vulnerability to economic slowdown through job losses in the South East and the Midlands. Trading is also set to get tougher for its aviation services division, particularly in ground handling.

Turbulence for airlines is likely to hamper any sale of the business, which has only just returned to profit. Go-Ahead is solely a domestic operator, meaning that it has no offsetting presence overseas and, unlike Arriva, First Group or National Express, will get no benefit from the weakening of sterling.

Aside from the defensiveness of its sector, Go-Ahead has two additional merits: the lowest gearing among its peers (net debt of only £198 million) and the highest dividend yield (a prospective) 4.8 per cent. Despite having rallied 20 per cent over the past three months, the shares, at £19.01, or ten times current-year earnings, are worth hanging on to.

HMV

There was a time when HMV was known for music and little else – but no longer. Yesterday, Christmas CD releases from bands such as Oasis and the Kaiser Chiefs were almost a sideshow as Simon Fox, the HMV chief executive, concentrated instead on Nintendo’s Wii and video games. The closest he came to talking about music was when he mentioned his favourite Wii game – Guitar Hero. Gaming has saved HMV. In an 18-week period in which sales rose by 4.3 per cent in the UK, software and consoles were up by 50 per cent.

Gaming could account for a quarter of HMV’s business over Christmas. And that is no accident. Mr Fox has worked hard to increase the floor space given over to video games at the expense of CDs, whose sales are budgeted to decline by 10 per cent a year. When the rest of the high street faces Christmas with trepidation, HMV cannot wait for it to start – and for that, Mr Fox deserves credit.

However, HMV’s overall sales growth has slowed, suggesting that younger customers may be feeling the pinch. Waterstone’s has taken another step back.

At 128¾p, or 11 times present-year earnings, and yielding 6 per cent, HMV’s shares are inexpensive, given forecast profit growth, and they could rally ahead of Christmas. Yesterday’s appointment of Robert Swannell as chairman could also stir speculation of corporate activity. Hold.

Carr’s Milling

Carr’s Milling Industries is classified as a food producer, but it might just as well be considered a commodity hedge fund.

As a maker of animal feed and a blender of fertiliser, the Cumbrian company buys forward much of its raw materials. However, the company’s expectation that strong price rises would persist prompted it to buy more heavily than usual, bringing in exceptional profits on the appreciation of its stockpiles as its prediction came true – particularly in fertilisers, where potash has trebled in price. With forward contracts struck in dollars, it has also benefited from the recent weakening of sterling.

The outcome was that Carr’s yesterday raised its profit forecasts for the fourth time in just over three months. It now expects pretax profits of at least £12.5 million, more than double those of the previous year. About £4 million of that sum might be considered one-off – especially given Carr’s recent decision to buy forward less aggressively. But the other phenomenon from which it has benefited – rising farm incomes on the back of substantial milk price increases – remains intact. In its food division, where Carr’s mills wheat into flour for the likes of Warburtons, it has largely been successful in passing on increased costs to customers.

Tempus advised readers to buy last year at 550p. Carr’s has an excellent record of profit growth, and, at nine times next year’s earnings, is still reasonably priced. However, at yesterday’s 680p, the temptation to take profits is too great. Sell.

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