15 FEBRUARY 1935, Page 34


English Railway Position

ALTHOUGH in common with most securities Home Railways have not escaped the general depression, there has been an undercurrent of hopefulness owing to anticipations of favourable dividends. A still greater influence affecting the market, however, has been the decision given last week of the Railway and Canal Commissions in the matter of the Southern Railway's appeal against the assessment of /2,180,000 as the annual value of the undertaking for rating purposes for the quinquennium 1931-1934. The judgement reduced that figure to £1,077,131, a figure which compares with a present assessment of £1,840,000. It remains to be seen, of course, whether there will be an appeal to the House of Lords, but, if no such appeal is made, the importance of the decision is undoubted as the remaining trunk lines will be affected by it, the Southern case having been taken as a test case on questions of principle.


It would, I think, be premature to assume that— supposing the Southern appeal to stand—other com- panies will be affected in similar proportions as has been suggested in some quarters, for it was intimated in the course of the judgement , that in the case of the other railways the facts might or might not be the same. Nevertheless, if the Southern decision stands, there can be no question that not only will the company's liability have been reduced by about £375,000 per annum, over the quinquennium, but other lines will benefit very greatly, though such estimates, for example, as the advantage to the L.M.S. amounting to about 11,000,000, the North Eastern to about £750,000 and the Great Western to about £500,000, must at present be regarded as rough guess-work. Not only so, but it has also to be remembered that the rating of the railways is subject to the provision whereby they were de-rated by 75 per cent. an condition that the reduction in the charge upon them is to be applied through the Railway Freight Rebates Fund to reduction of charges on certain classes of goods. Therefore, it would seem that some considerable portion of any savings to the railways resulting from the present legal decision will o to the Various industries concerned. The fact remains, however, that, unless there should be some reversal of the present judgement by the House of Lords, the railways stand to benefit materially at a moment when such benefit is badly- needed to meet the partial restoration of the cuts in wages and also at a moment when traffics themselves are no longer showing the pronounced upward movement which was apparent a few weeks ago.


How far the rating decision may have affected the directors of the Southern. Railway in their declaration of a dividend on the Preferred Ordinary stock of 4 per cent. against 3 per cent. a year ago it is, of course, im- possible to say, but in view of the mere chance of an appeal being made to the House of Lords -it seems unlikely that the directors would be influenced by the rating decision. The dividend just referred to was, however, up to the best expectations of the market on the basis of traffic earnings. In the first half of the past year the gross revenue rose by 1280,000, but the half-yearly statement showed that the addition to net receipts was only /90,000, and in the second half of the year the gross increase in railway receipts was £168,000. It looks, therefore, as if the actual working results in the second half of the year Must have been very favourable, for the extra 1 per cent. on the Preferred Ordinary stock involves about £276,000, while, after paying the dividend, the balance carried forward of 1227,353- is rather -higher than- a year ago, G.W.R. AND L.M.S.

The dividend announcements by the Great Western and the London, Midland and Scottish: ,Railways have been announced at the moment of concluding this article. In the' former case the Directors have again, by declaring a final dividend of 2/ per cent., been able to make up the 3 per cent. on the Ordinary, though 1324,000 has had to be 'taken from Investment profits and £550,000 from Contingency Funds. This, however, was pretty much in accordance with market expectations. The London, Midland _ands Scottish figures show that while the gross revenue for the year increased by nearly £3,000,000, the net revenue is only up 11,209,000. The Directors, however, after paying the full dividend on the 4 and 5 per cent. Preferences, are able to pay 11 per cent. on the 4 per cent. Preference of 1923, which is the first dividend received by that Stock since it received its full dividend in respect of the year 1931.


On the whole, therefore, it will be seen that, both as regards the dividends announced for the past year and the prospects of relief in the matter of revised • assessments, railway stockholders have some cause for a greater feeling of hopefulness with regard to the outlook. When, however, I say "stockholders," I am afraid that I must be understood as referring more particularly to the holders of prior charge stocks, for we have a long way to go yet before Ordinary stocks of the English railways can be regarded as coming into the investment category. And even as regards the prior charge stocks it has to be remembered that, with the exception of the Great Western Railway, none of these, so far as the four trunk lines are concerned, hold their former position as trustee securities, and, indeed, cannot recover that position for a long time to come. It must be remembered that some considerable part of the recovery in prior charge stocks of English railways is due quite as much to the great rise in gilt-edged securities as to the improvement in the position of the companies themselves. In proof of this, I need only cite as an example_ the 5 per cent. Preference stock of the London, Midland and Scottish Railway. That stock was issued in 1925, and even in that year, when it was paying the full interest and, moreover, was -a trustee security because the company had not defaulted on • its Ordinary stock, the price at one time was as low as 92i. Some few years later, in 1933, when the dividend was only 31 per cent. and the stock had lost its trustee status, the price was down to 47f. Today, when there is a return to the 5 per cent dividend, but when the stock is no longer in the trustee list, the price is as high as 106. This is largely due to the fact of the fixed date of redemption in 1955, and still more to the great rise which has taken place in all trustee securities.