Issue: Share price freefall
The fact that Railtrack was once the darling of the stock market, with
rapid growth and a pounds 17 per share value, became a distant memory
last week. A scathing analyst report sent Railtrack stock into freefall,
leaving the company on its knees with a departure ticket from the FTSE
Funding concerns for general maintenance and new infrastructure
development, particularly following the fatal Hatfield crash in October
last year, had already diminished the organisation's share value, but it
was the release of ABN AMRO's sell note that effectively put the nail in
ABN AMRO held back no punches as it valued Railtrack stock at 58p per
share: 'The full year results should leave investors in no doubt that
their equity is in danger of being wiped out' (wsj.com, 6/6).
There was a small reprieve for Railtrack as several investment banks
stepped into the fray to assert a healthier share value of between 400
and 600p. ABN AMRO rivals questioned the validity of the report, stating
that it was 'arithmetically flawed' (thisismoney.com, 6/6), had failed
to account for Railtrack's pounds 1.5bn government grant, and presented
only the worst case scenario (sundayherald. co.uk, 11/6).
The frenzied share dealing and analysts' disputes were the outward
manifestation of Railtrack's deeply troubled position. With hindsight,
commentators agreed the company's decline was the result of a
fundamentally flawed privatisation scheme.
The future for Railtrack was less clear. Tony Blair categorically ruled
out renationalisation as an option, despite its apparent popularity.
Ironically, even high-profile Railtrack investors supported the idea of
a partial renationalisation, with the Government taking a substantial
share of Railtrack stock in exchange for funding, which it was hoped
would offer the organisation some financial stability, political
direction and credibility in the debt markets.
Other options included the sale of property assets and partnership with
the regional train operators, which elicited positive responses from
GNER and Virgin.
Two views, however, became fundamentally apparent: that Railtrack must
be the priority for the latest transport minister Stephen Bowers and
that 'doing nothing is no longer an option' (Financial Times, 7/6).
Analysis and commentary by Echo Research. More information can be found