Finance

The Railway Outlook

IN about a month's time long-suffering stockholders in English railways will know how far the recent recovery in gross receipts, as shown .in the weekly traffic returns, is to be reflected in increased distribution of profits. I have described the railway stockholders as " long- suffering," for, as regards the ordinary stocks of the four trunk lines, only stockholders of the Great Western are at present receiving dividends, and in that case the dis- tribution is a mere 3 per cent. as compared with 8 per cent. ten years ago, while Deferred stockholders of the London and North Eastern Company have received no dividend since 1928:1= and holderS of the 5 per cent. Preferred have received nothing since March, 1931. The last dividend on the Ordinary stock of the London Midland and Scottish was paid in February, 1932, and holders of the Deferred Ordinary of the Southern Railway have received nothing since March, 1931. Many of the prior charge .stocks of the different railways have also had their distributions reduced in recent years, and how greatly the position of the stockholders has been hit both by reduced traffics and increased working charges may be gathered from the fact that, whereas in 1913 out of every £1 of receipts of the four main line companies 7s. 3d. }went in salaries and wages, the amount in 1932 was 1 ls. 4d., and whereas in 1913 2s. 8d. in every £1 was used in connexion with dividends on the Ordinary stocks, the amount so available and used in 1932 was 2d. Naturally, too, this deplorable position as regards dividends has found expression in the market value of securities, and holders of the Ordinary stocks of the trunk lines have seen the quota- tions of their securities down to rubbish. prices and a few months ago even prior charge stocks, and especially the Preferences, had experienced an unprecedented slump.

A TURN IN TIIE TIDE.

During the second half of 1933, however, gross revenues showed a most remarkable recovery, so that whereas for the first half of the year there was a decline in gross revenue on the four railways of 13,604,000, the final decline for the whole year was reduced to $109,000. The following table gives the details as • regards the individual companies : - Firs. t half Whole year.

• of year. £ Great Western .. 576,000 .. • + 87,000 London and N. Eastern : . - 3,000 London, Midland and Scottish .. -1,700,000 — 310,000 Southern — 100,000 . 111,000 Total .. .. .. —3;64,000 — 109,000

RISE IN PRICES.

.

For almost every week during the second half of the year railway traffics showed an increase, and at the end of the year only the 'tendon Midland and Scottish was left with a net decline. for the 'year. The recovery in the gross revenues‘ean probably be attributed, in part, to an improving tendency in trade generally and,iii part, to vigorous efforts by - the railroad managements to bring back revenue by popularizing passenger travel through improved - facilities . and the extension of the " summer " tickets. Following upon the sharp rally in the traffic receipts during the second half , of last year came an equally remarkable rally in prices of railway securities, the measure of which' may be gathered from the following table showing present prices- of a few representative stocks as compared.. with the lowest points touched during last year :

, Gt. Western Ord.

do. 5% Cons. Pref.

L. & N. E. PM. ..

do. 4% 1st Pref.

L. M. & S. Ord. ..

do. . 4% Pref. ..

!.Sotithern Prefd: Ord: ..

-' do: -- 5% Pref. . •

Lowest last year.

.. 31 .. 691 .. 71 ..- 191 .. 124 .. 331

. a, • .." .74— .-. Present price.

561 ..

111 ..

211 ..

641 261 71

`:64 . 7108i '

= Rise. 2.54 411 14 .. 45 .. _ 144 371

.: 31

341

(Continued on page 64.)

Finance

(Continued from page 62.) FORTHCOMING DIVIDENDS.

It now remains to he seen how far this great rally in securities will be found to be justified by the dividends to be declared shortly. It is possible that in some respects undue optimism may have been assumed, an optimism based upon a tendency to assume that the economies established by the railway companies for some time past and continued right up to last July can be continued indefinitely. I have already referred to the fact that for the first half of last year gross revenues showed a decline of about £3,600,000, but such were the economies effected during that period that the net revenue was down only £351,000. Consequently there has been rather a tendency in some quarters to imagine that on the top of the increase of about £3,500,000 in the gross traffics for the second half of the year there might follow still further economies, involving quite a substantial increase in net revenue for the entire year. This, however, I think, is scarcely likely to happen. Indeed, more than one Chairman of the railway companies has given shareholders warning in this respect, reminding them not only that economies cannot be continued indefinitely, but that increased earnings almost inevitably involve increased expenditure. It is true that with a hopeful trade outlook the Directors may be disposed to take a more optimistic view when it comes to the distribution of profits, but I am inclined to think that a good deal of caution will be displayed.

SEPARATE RESULTS.

Dealing with the companies separately, it may be noted that while the Great Western revenue for the last six months increased by £546,000, the net revenue for the first half of the year was £177,000 down, and the Directors were only able to pay 3 per cent. on the Ordinary last year by taking £1,100,000 from Reserves and £606,000 from profits on investments. The General Reserve has, in fact, now been absorbed, though there are Contingency Reserves of over £2,000,000 and the Depreciation Account stands at a high figure. It is quite clear, however, that the Company cannot have earned 3 per cent. on the Ordinary Stock last year out of ordinary revenues and it is impossible to say whether, to preserve the: full trustee status for the Prior stocks, the Directors will decide to encroach further upon reserves. L.M. & S.

In the case of the London Midland and Scottish the increase in traffics for the second half of last year was no less than £914,000. Nevertheless, in that case also the net revenue for the first' half of the year was down £300,000 and to pay the full dividends on the First Preference and the Redeemable Preference would have required an addition- to net revenue for the year of £1,300,000, so that in this case also it may be well to take a cautious view with regard to dividend prospects even on the Prior Charge stocks.

L. & N.E.R.

Somewhat hopeful views are expressed with regard to the London and North Eastern Company where the net decline in revenue for the first half of the year was only just over £150,000, while for the second half of the year the increase in traffics was so marked as to wipe out the whole of the previous decrease in gross earnings. Consequently, hopes have been indulged that the Company might be able to pay on the First Preference stock, though such payment would seem to involve a considerable strain, especially as previous economies have been so drastic that it is scarcely likely that they can have been continued on the same scale during the past half-year. THE SOUTHERN.

Optimism, however, has, perhaps, been most pro.. nounced in the case of the Southern Railway which was the only Company to show a net increase in revenue for the first half of the year. Since then the gross receipts for the second half of the year have also increased materially, though whether the market's hopes of a possible 3 per cent. on the Preferred Ordinary will be fulfilled remains to be seen. If they should be, then even the present rise in the price would seem to be

P.S.—Since writing this article, I have received from Messrs. Robert Benson & Co., of 24 Old Broad Street, a most excellent brochure dealing with the whole subject of Home Railways. It is a brochure which should be exceedingly useful to all holders of Railway securities.