Investment: Prism is on the right lines

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PRIVATISED TRAIN operators may be hated by commuters but in investors' eyes they can do no wrong. Yesterday Prism Rail, which runs four franchises around the country, reported its first full set of results since flotation and the shares steamed ahead, rising 75p to 510p.

What impressed the City was Prism's passenger revenues, which grew by more than 10 per cent. Contrary to popular belief, the growth did not all come from higher prices. Just 2 per cent of the rise was down to more expensive tickets while the rest came from more people using the trains.

This is just as well, because Prism needs to run just to stand still. This year the company will get pounds 30m less in subsidies, so it will need another 7 per cent revenue growth to make up the shortfall. Given its recent performance, this should be possible. But remember that a large chunk of Prism's growth is down to increased economic activity rather than its particular excellence at luring more people onto trains.

That said, the Government's forthcoming white paper will undoubtedly encourage more people to give up their cars, which can only work in Prism's favour.

Profits will probably fall to about pounds 13m, putting the shares on a forward p/e ratio of 14. But with Prism hunting for deals at home and abroad, and maybe becoming a bid target itself, the shares are good value.