Where Sid won and lost

Clifford German spots the lemons in the basket of privatisation stocks

Railtrack is the 41st public sector company to be sold off into the private sector in a process which goes back to the initial sale of a stake in BP as long ago as 1977, although it only really began in earnest in the Eighties after the election of Margaret Thatcher. Allowing for the fact that some companies have been sold in two or three or even four tranches, there have been 51 separate sales, and all but two are in the black.

But the basket of privatisation stocks contains a number of lemons as well as oranges. The best performers by far have been the early privatisation issues, led by BP, Associated British Ports and Cable & Wireless. All three were sold in stages and in all cases the early birds got the worm. The first tranches were sold off cheaply and the subsequent offerings were offered at higher prices.

Allowing for share splits and rights issues, investors paid the equivalent of 14p a share for AB Ports in February 1983. They now have an investment worth almost 300p a share, more than a twentyfold increase in 13 years. Those who bought the second tranche of shares at the equivalent of 33.75p in April 1984 have multiplied their money almost ninefold.

This is a recurring pattern. Cable & Wireless shares were sold off in three successive tranches at the equivalent of 28p in November 1981, 68.75p in November 1983 and 146.75p in March 1985. And at the current price of 535p each they have proved a good investment, although the returns on the second and third tranches are significantly less spectacular than the ones before.

Investors paid the equivalent of 70.4p a share for the first chunk of government shares in BP sold off in 1977, and they are now worth around 590p, an eightfold gain in 19 years. The next two chunks, sold in 1979 and 1983, have multiplied fourfold, but the fourth and final tranche, which was caught up in the great crash of October 1987, has taken nearly nine years to show an 80 per cent appreciation.

Two other early issues, British Aerospace and Amersham, the healthcare group, have done well by their backers, although the second tranche of BAe cost two-and-a-half times as much as the first. BAA and British Airways, which were not privatised until 1987, have also turned out to be a good investment, with shares now worth four-and-a-half times the issue prices - far ahead of the FTSE index, which has risen about 70 per cent over the same period.

The remaining issues in the Eighties have done significantly less well, however. British Steel, privatised at 125p a share in December 1988, now stands at around 200p, although the FTSE 100 index has more than doubled over the same period. Sid paid 135p for British Gas in December 1986, and although they hit 350p two years ago the shares now languish at 250p - an average growth of 9 per cent a year - and has significantly underperformed the stock market average of 15 per cent a year over the same period.

British Gas has taken some stick from the stock market in the past two years because of the huge long-term contracts to buy gas at prices above the current market level, but persistent investors in British Telecom have little more cause to congratulate themselves. Investors who got in during the first sale in December 1984 now have a stake worth nearly three times what they paid for it. But the second and third tranches have turned out to be poor investments. The second tranche is showing a gain of 12 per cent in over four years, and investors who paid the Government 410p a share for the third and final tranche in July 1993 are sitting on a loss of about 30p a share.

Rolls-Royce was sold off in May 1987, and until recently was showing a loss. A recent spurt has taken them up to 240p, but they have underperformed the market.

Privatisation got a second wind from November 1989 onwards, when the water and electricity industries were sold off. Both sectors have comfortably outperformed the stock market, but it has needed a massive injection of takeover interest to make investors feel they have done well.

Even so, performances have varied enormously. Investors in Norweb made a phenomenal profit, walking away with almost five times their original investment in five years when they were taken over by North West Water. Seeboard, Manweb, Eastern Electricity and South West Electricity have ridden on the same bandwagon, and Southern looks set to follow. Its shares are worth almost four times what they were when investors first subscribed for them in November 1990, over a period during which the FTSE 100 share index has risen no more than 80 per cent.

The remaining regional electricity companies, which have not yet attracted a bid, have done less well for their investors, but there is a bid premium in the price of most of them, and the poorest performer, East Midlands Electricity, has more than doubled their money. Most regional electricity shareholders have also had the benefit of shares in the National Grid, which has been demerged out of the collective ownership of the regionals.

The strong performances of National Power and PowerGen also owe a lot to bid prospects, although it is the same old familiar story in that the second tranches still lag well behind the performance of the first. Investors who bought the first tranches in March 1991 have seen their money multiply three-and-a-half times, more than twice as fast as the market as a whole. But the second tranches, sold off in February last year, are showing rises of only about a third.

Northern Ireland Electricity shares have doubled in three years without the benefit of a bid, but the booby prize in the electricity sector goes to Scotland. Until recently, the two Scottish electricity companies, Scottish Hydro and Scottish Power, have been rather dull performers, sold at 240p and now standing at about 368p and 400p respectively.

Water company shares, which were privatised in November 1989, have attracted less bid speculation and underperformed electricity in spite of their high yields, but bid activity has boosted values. Northumberland, Welsh Water and North West Water lead the pack, but even those companies which have not had a sniff of a bid have turned out to be good investments. Most of them have comfortably doubled in value, compared with a market average rise of about 75 per cent since 1989.

PRIVATISATION PROFITS: THE RECORD SINCE 1977

Company Issue date Price (p) Price now x growth % pa

Amersham Feb 82 142 1005 7.07 43

AB Ports 1. Feb 83 14 291 20.79 150

2. Apr 84 33.75 291 8.62 63

Brit Aerospace 1. Jul 81 150 878 5.85 33

2. Sep 85 375 878 2.34 12

BAA Jul 87 122.5 554 4.52 40

Brit Airways Feb 87 125 555 4.44 37

Brit Gas Dec 86 135 250 1.85 9

BP 1. Jun 77 70.4 589 8.37 39

2. Oct 79 121 589 4.87 23

3. Sept 83 145 589 4.06 24

4. Oct 87 330 589 1.78 9

Brit Steel Dec 88 125 198 1.59 8

BT 1. Dec 84 130 376 2.89 17

2. Dec 91 335 376 1.12 3

3. Jul 93 410 376 0.92 -3

Cable & Wire 1. Nov 81 28 535 19.11 125

2. Nov 83 68.75 535 7.78 54

3. Mar 85 146.75 535 3.65 26

Enterprise Oil Jun 84 185 441 2.38 12

Rolls Royce May 87 170 240 1.41 5

National Power 1. Mar 91 175 605 3.46 48

2. Feb 95 340 470 1.38 33

PowerGen 1. Mar 91 175 606 3.46 48

2. Feb 95 370 468 1.26 22

Scottish Power Jun 91 240 400 1.67 14

Scottish Hydro Jun 91 240 367 1.53 11

N Ireland Elect Jun 93 220 453 2.06 37

Eastern Electricity Nov 90 240 975* 4.06 63

E Midlands Nov 90 273 669 2.45 27

London Nov 90 280 855 3.05 38

Manweb Nov 90 240 990* 4.12 63

Midlands Nov 90 120 417 3.47 46

Northern Nov 90 240 719 2.99 37

Norweb Nov 90 240 1170* 4.87 77

Seeboard Nov 90 120 535* 4.46 68

Southern Nov 90 240 891 3.71 50

South Wales Nov 90 240 849 3.54 48

South Western Nov 90 240 965 4.02 62

Yorkshire Nov 90 240 874 3.64 49

National Grid Dec 95 204 198 0.97 -9

Anglia Water Nov 89 240 614 2.56 24

Northumberland W Nov 89 240 1179* 4.91 63

Northwest W Nov 89 240 627 2.61 25

Severn Trent W Nov 89 240 603 2.51 23

Southern W Nov 89 240 778 3.24 35

Southwest W Nov 89 240 717 2.99 31

Thames W Nov 89 240 584 2.43 22

Welsh W Nov 89 240 750 3.12 33

Wessex W Nov 89 240 362 1.51 8

Yorkshire W Nov 89 240 704 2.93 30

* takeover price

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Pricing Analyst

    £30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Day In a Page

    Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

    The 161-page dossier that exposes Fifa's dark heart

    How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
    Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

    Exclusive interview with Tripoli PM Khalifa al-Ghweil

    'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
    Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

    Raymond Chandler's Los Angeles

    How the author foretold the Californian water crisis
    Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

    Art attack

    Chinese artist who posted funny image of President Xi Jinping facing five years in prison
    Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

    Cher is the new face of Marc Jacobs

    Alexander Fury explains why designers are turning to august stars to front their lines
    Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

    'I'm climbing Ben Nevis for my daughter'

    Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
    10 best wedding gift ideas

    It's that time of year again... 10 best wedding gift ideas

    Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
    Paul Scholes column: With the Premier League over for another year, here are my end of season awards

    Paul Scholes column

    With the Premier League over for another year, here are my end of season awards
    Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

    Liverpool have seen too much tragedy to forget Heysel

    Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
    Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

    Khan’s audition for Mayweather may turn into a no-win situation

    The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
    Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

    Blundering Blair quits as Middle East peace envoy – only Israel will miss him

    For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
    Fifa corruption arrests: All hail the Feds for riding to football's rescue

    Fifa corruption arrests

    All hail the Feds for riding to football's rescue, says Ian Herbert
    Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

    The Kurdish enclave still resisting the tyranny of Assad and Isis

    In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
    How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

    How I survived Cambodia's Killing Fields

    Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
    Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

    How Stephen Mangan got his range

    Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor