29 MARCH 1940, Page 30


Winding up the railway meeting season, Mr. R. Holland- Martin, chairman of the Southern, wisely refrained from traversing the ground already well covered in the speeches of the other three railway chairmen. He did not examine in detail the financial agreement with the Government. Nor did he tell us, as many of us hoped he would, at what level the pool's net revenue is running. On that subject the only significant fact he vouchsafed was that whereas in normal times goods traffic on the Southern system was only 25 per cent. of total receipts, it now accounted for about so per cent. Here is striking evidence of the growth of goods traffics in war conditions. Under the new arrangements this change in the composition of the Southem's traffics will not benefit the company directly since receipts are pooled but it is obvious that the pool's revenue is going to reflect the quickening pace of the war effort.

So far as Southern is concerned, the guaranteed minimum provides the full 5 per cent. on the preferred and something less than I per cent. on the deferred. Beyond that point, however, gearing comes into play and at Stage 2 (guaranteed minimum plus L31 millions) of pool net revenue earnings on Southern deferred rise to 2.7 per cent. At 7o the preferred stock can be bought to yield just over 7 per cent., which seems to me a generous return in relation to the security offered, and at 21+ the indicated earnings yield on the deferred is over 12f per cent. I do not know at what level net revenues are running and some adjustment of charges is obviously needed to cover higher costs, but I am prepared to budget on the attainment of Stage 2 for 1940. On that assumption home rail junior stocks look good speculations. * * * *