Finance
Railways and the Investor
Tit E financial results so far disclosed of the English' railway companies for the past year may be said to fulfil general expectations. The London Midland. and Scottish has been able to pay a final dividend of 2f per cent, on the 4 per cent. First Preference Stock, making 31 per cent, for the year, and 41 per cent. on the 5 per cent. Redeemable Preference _Stock, so that the former now gives a yield to the investor of nearly 4:: per cent., while there seems to be a fair prospect of the full 4 per cent, being obtained at the end of the current year. in that case, of course, the 5 per cent. Redeemable Stock would alSO obtain its 5 per cent. interest as the two stocks rank pan i passu in the division of profits, and in that event the yield on the 5 per cent. .Preference Stock at the present price would be just over 5 per cent., though the profit on redemption is now trifling as the Stock itself has risen to about 97f.- in the ease of the Southern Railway the dividend of 3 per cent. on- the Preferred Ordinary Stock 5S compared with 1 per cent. for the previous year, also fulfilled the best expectations, especially as the brief statement accompanying tbe• dividend announcement showed that the balance forward had also been increased. Indeed, the figures suggested that the available income was probably more than 1500,000 in excess of that of the previous -year, though the published gross receipts had only shown an increase of .£111,000. Further saving in expenditure; • therefore, would seem to have taken place.- • L; M. & S. FIGURES. • The full report of the London Midland and Scottish Railway for the past year shows, however, that in the ease of that company the great increase in gross earnings (luring the second half of last year was offset, to sonic extent, by increased expenditure. This, of course, Was only to be expected in view of the great advance in gross revenues. For the first half of the year the loss in gross receipts was no less than 11,700,000, but savings in expenditure amounted to 11,400,000. Now for the entire year the reduction in receipts has been brought down to £322,000, but the decrease in railway expenditure over the whole of the year is £976,000. On the other hand, ancillary revenues have increased materially, and consequently there is an expansion in the net revenue for the year of about £807,000. G. W. R. DIVIDEND.
The Great Western Railway, which is now the only companyto retaiints 'stocks in the trustee list by reason of its payment of 8 per._ cent. on the Ordinary Stock, has also once again announced the 3 per cent: dividend for the past year. The report itself has not yet appeared, but I think there can be little question that,-although the gross traffic returns showed an increase- for the second "half of last' year of 154'6;000, 'there mint have been a further drawing upon special funds, for during the first half of 1933 the net earnings were £177,000 down, and to pay the 3 per cent. Ordinary dividend last time required a heavy drawing upon reserves and from profits on investments. The Company, however, has a Contingency Reserve of well . over 12,000,000, -and the Depreciation Account is a very large One. More. over, it is probable that the Directors on this occasion felt -the less compiiiietibn In drawing upon *special funds owing to the somewhat brighter outlook for traffics generally. -The -Landon– and North Eastern results will not be known until the beginning of next -week.
WILL _PRICES ,RISE FURTHER?
In view of the recovery in traffics during the second half of last year—a recovery which. has been thoroughly well maintained during the first few weeks of the present year—the long-standing railway stockholders may well be wondering whether they should take advantage of the recent rally in prices, and so realise some of the capital losses they have suffered, or whether they should hold on for still better things. So far as some of the prior charge stocks are concerned, I think that the prospects favour a still further advance as there is the extra stimulus of cheap money and the famine in high-class investment stocks to aid the recovery. With regard tio the Ordinary stocks, however, it is more difficult to speak. On the favourable side may be set the fact that a real revival in trade would bring about a much greater increase in gross earnings than that which has been achieved during the -last 'few months, but, on the other hand, from such increase in gross earnings Would undoubtedly have to be deducted something for an increase in expenditure, for economies have not only been drastic but they must, to some extent, have taken the form of a great many dis- missals, and if the popularity of railway travel is to be completely recovered the companies cannot afford to work with insufficient staffs.
LABOUR AND WAGES.
Undoubtedly the greatest problem in considering the future of Ordinary stocks of the railways is connected with Labour, for although the railway industry is a shel- tered one, and although it is true we have had freedom from strikes over quite a considerable period, the experi- ence of the earlier. part of the post-War years tends to show that with every increase in gross earnings come fresh demands from Labour, with scant concern for the fact that Ordinary shareholders may have had no return on their capital for some years. A further point which has to be borne in mind is the likelihood of railways having to add to their capital in the near future in order to carry out various improvements and extensions. There- fore, while on the whole I am inclined to think that if trallies expand there may be a further rise in the junior stocks of the English railways, I believe such advance would be due to speculative rather than to investment buying; that is to say, the stocks would be bought, as traffics advanced, on dividend prospects, but how far those prospects will be fulfilled in a resumption of regular income for the holder of the Ordinary railway stocks I should not like
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