Finance—Public and Private The Outlook for English Railway StOcks TIME

was when so far as. the prior charge stocks, at all events, were concerned, English railway securities could be ranked, not only amongst the safest, but amongst the steadiest of trustee securities. Those days, however, so far as stability of price, at all events, is concerned, arc long since past, and we are confronted to-day with the position of most of the railroads having to defend certain of their prior charge stocks from being removed from the trustee lists by drawing heavily upon reserves, in order to pay the minimum dividend on the ordinary stocks which is necessary if prior charges are to remain in the category of trustee investments.

COAL STOPPAGE NOT ALONE RESPONSIBLE.

Of course, it will be said, and quite truly, that the position is an abnormal one, and one, moreover; which can be attributed to the wholly exceptional' coal stoppage of last year. Unfortunately, however, the financial troubles of English railways go, I think, much deeper than anything which is covered by the results of the recent coal dispute, and while later in this article it will be found that I am drawing attention to the fact that for the moment railway stocks appear to have fallen to a low level, I must say quite frankly that, so long as this great sheltered industry is being run on lines whereby the trader and the traveller alike are being penalized to keep up an uneconomic wage system, railway stocks can never be regarded as all entirely safe and sound investment. It is quite possible, however, that out of recent troubles better conditions will arise, and I am not asserting for one moment that it would not be possible even now to restore to our railroads their former popularity and at the same time to give back to those who have placed their capital in the enterprise the sense of security which was enjoyed many years ago. And ill fairness to the companies themselves it must be acknowledged at the outset that the extent to which the situation last year was demoralized by the coal stoppage is demonstrated by the fact that previous to the general strike in May all the companies had shown an upward tendency in earnings, whereas at the end of the year there was an aggregate drop in gross receipts of something like £27,000,000.

PAST-YEAR'S RESULTS.

Briefly summarized, the melancholy record of net financial results by the four leading groups runs somewhat as follows : The 'London Midland and Scottish Railway declared a dividend, making 3 per cent. for the whole year as compared with 6 per cent. for the previous year. To achieve this reknit, however, over 87,009,000 had to be withdrawn from the Reserves, while, in addition, and in order to clear up the losses resulting from the coal strike, the company .transferred a . further amount of £1,700,000 from the General Reserve against losses expected to be made in 1927 in connexion with foreign_ coal purchases contracted for last year. Quite apart,. however, from this extra amount allotted for the current year, the figures suggest that the company really only. earned in full its dividend on the Debenture stocks and 4 per cent. Guaranteed stock. It looks, in other. words, as though about one-half of the dividend on the. 4 per cent. First Preference Stock had been taken from the 'Reserve in addition to all the dividends on the. Redeemable Preferences and on the 4 per cent. Preference stock of 1923, and, of course, the whole of the dividend on the Ordinary stock. The Great Western Railway. pays a dividend of 3 per cent. on the Ordinary as compared with 7 per cent. for the previous year, and to make this payment, £1,000,000 has been taken from the Reserve for contingencies and £1,100,000 from the General Reserve,. while the carry forward is only £12,000 as against £165,000 a year ago. These results suggest that the company earned rather less than one-half of the dividend on the 5 per cent. Preference stock and that the • whole of the dividend on the Redeemable Preference and • on" 116 -Ordinary stock had to come fawn the Resern.s.; In the case of the Southern Railway, the company hew, fited to some extent by the smaller proportion of its Minerals and goods traffic. The dividend on the Defer Ordinary on the present occasion is II per cent. as corn pared with 31 per cent. a year ago, and to pay t dividend £704,000 was taken from the Reserve £128,000 from Suspense Account, while the sum ca forward is reduced by £95,000. The point, however, be noted with regard to the Southern line is that t company has, at all events, earned the greater part its dividend on the Deferred stocks and the full divide on all the Prior Charge issues.. At the moment of writi the North Eastern results have still to be announ

EXPENDITURE LOWER.

It had been hoped that some of the damage occasioi to the railway revenues by the prolonged coal stoppa„ would have been repaired by a saving in Working.ehar, inasmuch as by reason of the depression resulting f the coal stoppage there must have been a materi reduction in the . number of railway employees. To moderate extent only these hopes have been fulfill but at present the only actual Reports which have issued are those of the Great Western and the South The former shows that while gross receipts fell by a £5,300,000, the expenditure was reduced by abou £2,600,000. In Maintenance and Renewals of Wa and Works there was a decline of about £260,000 and the head of Wages and also a reduction of about £280, under the heading of Renewals of Locomotives. On t other hand, and notwithstanding a reduction in tra services as shown by a drop of about 15 per cent. engine mileage,. the fuel bill rose by about £340,000 In the case of the Southern Railway, gross receipts f by about £1,800,000 while expenditure dropped to t extent of about £440,000.

PRESENT PRICES AND YIELDS.

During the past few days there has been a moth rally in some of the stocks and it will be seen from figures which follow that present quotations are no means the lowest of the last two years. Particul are given in the table of the highest and lowest quotati for this year and last, together with the latest divid announcements and the yields to the investor from purchase at present prices.

1925. 1926. Present. 1926. '

Highest Lowest Highest Lowest Price Dividend f s.

. 81 ..

. 91) ..

. 521 ..

. 17: ..

. 661 ..

.'70 ..

. 09! ..

. 711 ..

. 38: ..

. 89 .. 92 971 631 221 731 781 "..' 77 79) 46) 97* .. 821 ..

.. 91 ..

.. 48 ..

.. 151 ..

.. 63 ..

685 .. 701 ..

.. 74 ..

.. 41) ..

.. 901 ..

871 ..

96) ..

501 18)

64) 'T51

751 811 421 ..

901 ..

3 ..

5 ..

544:

11

5 •

3

5 6 59 —18 6 3 I9

6

IS 5 6

rate of dividend to be paid. yet declared. G.W. Ord. 1111 . do.5p.e. Pfd. 104 . L.N.E.R.Pf. 831. do. Dfd. 32 . do. 4 p.c.

let. Pl... 82 . L.M. do.4p.c.Pf. 82 fi Southern Pfd. 851 . do. Dfd. .. 45 . do.5p.e.Pf. 102) .

* Assuming full t Dividend not •

In

the mentioned in the foregoing to considering yields prices are full of dividend which makes the yield rath the Ordinary stocks of the railways mentioned bel° are scarcely exhilarating.

the near future. Speculators and investors alike 3 conducive to appreciation in market value as anticipat railways, it may he arguedilint worse conditions than some allowance has to be made for the fact that preset greater than shown, but, even so, with British Governium stocks. giving a return of about 42 per cent., the yields ability of a moderate rise in railway ordinary stocks None the less, I am quite prepared to accept the Pro of capital appreciation, and there is nothing which evidently keenly watchful for any stocks having a Pros Bngi Of itsproved conditions. Thus, as regards our tl kb have prevailed during the past year could scarcely imagined, that in the very near -future traffic returns I be comparing with the disastrous figures of a year ago, that if before that time _arrives-there should be any-. g like a trade revival, we might. have almost bumper file returns when compared with last year. Then, n, there is always the .possibility of lower prices of I and more. efficient organization leading to a reduction overhead charges, while, despite the present heavy oachments upon reserves; the fact remains that in form or another the railways have still a good deal ie way of liquid reserves to fall back upon.

FUNDAMENTAL CHANGE REQUIRED.

ut while r incline to the yiew that purchasers of glish railway stocks at their current prices probably id a fair chance of securing a moderate profit, I reely think' that Home railway securities can be ored to their obi _high position in the rank of invest- nt stocks until the railways are running under much less ificial conditions than those which now exist, and until evident that-the industry is fully meeting the require- ts and desires of the general public and that its ployees are prepared to give greater allegiance and alto to the industry from which they derive their liveli- than to the appeals of extremist Labour leaders.

ARTHUR W. KIDDY.