Finance—Public and Private
The. Railway Outlook WHEN taking a survey recently of Stock Market prospects for 1929, I mentioned the_ likelihood of speculative investors taking time by the forelock in acquiring some of the stocks of leading indUstrials such is English Rails, which have fallen so heavily' not merely during last Year but for a period of years. And although the year is only slightly more than a . week old,, juke a feature has been the rally already established_ in .leadkig-Enklish Railway stocks. The low Water-Mark for many of these was touched towards the latter part of December, and already there have been established gains . of over 6 pointS in Great Western. Ordinary, nearly 8, points in London /and North .Eastern Second Preference, . and about 6 pomts in London Midland and Scottish.
PROFESSIONAL BUYING.
Whether these gains will be found to have been jus- tified when forthcoming dividends and annual Reporti are published remains to be seen, and at present the pur- chases have probably been of the professional class rather than on behalf of the genuine investor. This means that markets will be the more sensitive to any unduly- dis- appointing results. At the same time, the present general level of values is so low that the declarations would have to be very bad indeed not to warrant the rally which has at present taken place.
MARKET HOPES.
Broadly speaking, it may be said that those who have recently acquired English Railway Ordinary stocks have done so on hopes thatthe great shrinkage in gross revenues for the past year may have been offset by a- big decline in working expenditure ; second, on the hopes that- efforts recently made by the railways in the matter of cheap fares, etc., to popularize railroad transport and also to compete with motor traffic may _prove successful in the near future ; while, in the third place, there is the hope that the Government's Derating Bill and other influences may do something to stimulate general trade. = FALL IN REVENUE._ So far as the actual gross revenues as disclosed in the weekly traffic returns are concerned, the position, of course, could scarcely be worse. Thus, the London Midland and Scottish Railway shows a decline in grass revenue for the year of about £4,300,000, the London and North Eastern a decline of 12,752,000, the Great Western a loss of £1,387,000, and the Southern a drop of £695,000. If, therefore, hopes were not strong of some important savings in expenditure, the position would almost be one of dividends being wiped out. Fortunately, however, there are not wanting grounds for believing that fairly important savings in expenditure may have been achieved, although in that connexion it will be well, perhaps, not to attach too much importance to any savings resulting from the recent voluntary surrender by staffs of 21 per cent. of wages, because that agreement can only have been operative for a very short period:
POSSIBLE SAVINGS.
The main direction in which-the market is naturally looking to see the greatest economies in working expen- diture is in coal, the railways having doubtless benefited both by lower prices and also by reduced consumption. Moreover, shareholders fortunately have something more to g a upon than mere surmises with regard to economies duriag the past year. When the half-yearly dividend statements were made, some of the railway directorates intimated that the economies were of an important character. Indeed, in the case of the Southern Railway the intimation was to the effect that the whole of the company's gross loss for, the first- six months was prac- tically offset by important savings. Again, in. the case of the London and North Eastern, information was given by the Directors that fully one-half of the big loss of £1,500,000 for the first half of -the year had been offset by economies, while the London Midland and Scottish Board, in somewhat different terms, explained that against a gross decline of 12,100,00Q for the first six months, the economies amounted to about 11,000,000. The Great Western Board gave no intimation to the shareholders beyond that which was conveyed by the assurance that the interim dividend was only declared after taking all circumstances into consideration. Never- theless, it seems reasonable to assume that what was acknowledged by the other companies as having been accomplished for the first half of the year would also have been accomplished by the Great Western Directors,
DIVIDEND CONJECTURES.
On the basis of these savings actually announced, the market during the last few days has been busy in making calculations as to the possible net effect upon the forth- coming dividend announcements, and naturally in view of the scant information available, these estimates are of a somewhat wide character. Thus, in the case of the Great Western there is a disposition to look for anything from Bf to 6 per cent., while on the London Midland and Scottish estimates range from about 3 to 81 per cent., and in the case of the Southern line, it is generally thought that the dividend on the Deferred stock may be reduced to at least 11 per cent. The case of the North Eastern falls into a class by itself, for that company has drawn so heavily upon its reserves that there has been a good deal of doubt expressed as to whether the company would again be able by paying • a fractional dividend on the Preferred Ordinary to retain its Prior Charge issues in the trustee list. So far as actual earnings are concerned, it is tolerably clear-that there will be nothing available for the stock in question, but judging from an observation recently made by the General Manager of .the company, it looks as though some special effort might be made to meet the situation. At a recent interview concerning the question of the possible contribution of the London and North Eastern Railway to the cost of a scheme in con- nexion with eliminating level crossings at Hull, Sir Ralph Wedgwood, according to a report in the Yorkshire Post, after referring to the difficult position of the railway company's finances at the present time, empha- . sized the fact that the company's Reserve Fund had . now been reduced to approximately £500,000, and it was essential, he said, that a dividend should be main- tained on. their Ordinary stock in order to preserve the status of the Prior Charge issues.
LOOKING AHEAD.
Assuming for the moment that market expectations, or perhaps it should be said market hopes, of forthcoming dividend announcements are realized, it might, perhaps, still be said that there is nothing in the distributions to justify any further rise in English Railway stocks than that which has already taken place, especially having regard to the disappointments experienced by stock- holders over a long period of years. Nevertheless, it must be remembered that in these matters there is a tendency to take a long view, and that thole who are optimistic might urge that, with an iniprovement in the trade of the country, a very different state of affairs would be shown as regards fUture earning 'power. The results of railroad management since the grouping system was adopted some years ago scarcely perhaps encourage a too optimistic view with regard to the future. On the other hand, however, under the stress of adversity there have recently been signs of an awakening and an improve- ment in the management and organization.
ARTHUR W. KIDDY,
Previous page
