Comment: P&O's promises will not hold off snipers for long
Wednesday 27 March 1996
It is hard to escape the view, however, that it will take more than yesterday's promises-promises to persuade the City to rerate the shares. As a long term strategy, selling a sizeable chunk of the group's pounds 2bn property portfolio to pay the dividend is hardly credible even if, in the short term, it avoids the ignominy of cutting the payout.
Floating off Bovis Homes, while it gets rid of one of the most cash-hungry parts of the empire and conveniently sidelines a division with one of the lowest returns in the group, is also hardly a great strategic leap forward. Arguably in the run up to a widely expected housing recovery, P&O should be holding on to Bovis.
The group's problem is not that its spread of transport, shipping and property businesses are unusually badly run but that they operate in a range of lousy markets. During the 1980s Lord Sterling was bailed out by inflation, as he had been during the 1970s, with relentlessly rising property values providing the cash to invest heavily in the capital intensive cruise liner and ferries businesses. It is possible to argue that continuing to invest throughout the recession was the right long term strategy, misunderstood by the short-sighted City, but with the real estate cash tap firmly shut it was never going to be a sustainable policy.
One of Lord Sterling's favourite charts at the moment shows how since he took the helm in 1983 the total return on P&O's shares broadly matched that of the market until little more than a year ago. That says something about the importance of dividend income to total investment performance, and rather more about the ability of statistics to tell any story you want them to.
As the chart on the opposite page shows, another way of looking at the same data is that P&O's shares, having outperformed the market by a huge amount in Lord Sterling's first two honeymoon years in charge, have steadily undershot ever since. Yesterday's proposals will hold the snipers off for a while but, with a plausible break-up value in excess of pounds 7 a share, it will take something more substantive than this to see off P&O's critics for good.
Labour will not stop Railtrack flotation
Most stock market pundits are a spineless lot. Even those prepared to forecast the index tend to avoid putting a date on it. The Labour Party may be about to try the political equivalent, by leaving the date out of its promise to bring the railways back into public ownership. Within the next few days the party is planning to release a policy statement to be incorporated in the Railtrack prospectus next month.
The indications are that the wording will be tough, satisfying John Prescott, the hawkish deputy leader, but leaving the timing so vague that Gordon Brown, the shadow chancellor, will be be able to dismiss the financial costs, thus reassuring the City about Labour's fiscal orthodoxy.
Labour will repeat its previous statement that Britain needs a publicly owned, publicly accountable railway, implying it will bring Railtrack back under public control, at some undefined date. It is also likely to propose abolition of the pounds 2bn a year government subsidy to the 25 passenger train operating companies, and a re-routing of the money directly to Railtrack.
This is obviously going to be difficult, given the tight contracts under which train operating franchises have been sold. However, it might be possible. If track access charges are reduced by the amount the operating companies receive in subsidy, the financial effect would be neutral. But why bother? While subsidising Railtrack rather than the operating companies might give the Government more control over the network, it is hard to see what other benefits there would be.Labour policy will probably be dressed up with lots of cautious words about consultation and deciding at the appropriate time. It may knock a little off the sale price, but it will not stop the flotation.
These unemployment figures are a sham
To describe the unemployment statistics as a "fiddle on an orchestral scale", as Greville Janner, chairman of the House of Commons Select Committee did yesterday, is certainly a good line. His report on the same was, however, a rather more limp affair than the one produced by civil servants.
The committee held back from calling decisively for a monthly unemployment number based on the Labour Force Survey. The Central Statistical Office made its own view rather clearer with a working paper recommending collecting the figures on this internationally accepted definition at an extra cost of pounds 7-8m a year.
The Chancellor has now been told by three separate bodies that the headline figure, which measures the number of benefit claimants, is widely regarded as a sham, since it understates - probably quite substantially - those actually unemployed and seeking work. It is an easy figure for the Government to collect but it has been undermined by the many changes in definition.
The new Job Seekers' Allowance in April will be the latest in a long line of changes affecting the headline total. Independent experts, official statisticians and MPs are in agreement that it will no longer do.
The lavish rewards of failure
When it comes to lavishly rewarding failure, the Dutch masters of Barings have managed to suppress their deep Calvinist austerity. By any measure, the financial package agreed with Andrew "Teflon" Tuckey is an affront.
It may be paltry compared with the rich rewards that he once believed were rightfully his. But this is the man who presided, as deputy chairman, over one of the most spectacular collapses the City has known. The Securities and Futures Authority, holding to strict legal procedures, cleared Tuckey ofdirect involvement in the management debacle that allowed the Barings disaster to happen. But there was no hiding their feeling that natural justice had not been seen to be done.
Now this. "Retirement" at 52 with a pension of pounds 120,000 a year; a pounds 110,000 annual fee as a consultant, and the usual share of profits as bonus. Such are the rewards of failure. Ministers don't resign these days, so why should investment banking captains go down with their ship? But rest assured. ING Barings says his role has been substantially scaled down. Oh well, that's all right then.
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