Your Money: The last train to fast bucks

The Railtrack float is setting off soon. So should you be on board? Nic Cicutti answers your questions
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The Independent Online
The spirit of Sid is alive and well, if the number of people registering an interest to buy shares in Railtrack, the holding company that owns almost all of Britain's railway infrastructure, is anything to go by.

Around 2 million people have registered an interest in Railtrack with one of the 110 Share Shops authorised to handle applications for the UK public offer (UKPO) that will sell at least 30 per cent of the shares.

The closing date for UKPO applications is midday on Wednesday, 15 May, two days later for retail tenders. On 20 May investors will learn how many shares they have been allocated. Before rushing off to buy shares, consider these points.

Should I buy Railtrack shares?

Most brokers say you should fill your boots. Last year Railtrack made profits of pounds 189m. This is expected to rise to pounds 233m next year and pounds 285m by the year 2000. Some experts believe new technology and accompanying job cuts will ensure even higher returns. Unless, of course, Railtrack faces a repeat of the 1994 signal workers strike.

There is also a potential political downside. If Labour wins the next general election Railtrack may not provide such an easy ride for investors.

Although Tony Blair's New Labour will not want to offend the City by re-nationalising Railtrack, the prospect of far tighter regulation is likely. Railtrack could be forced to use profits from land sales to improve the network rather than dividends.

Is this another heavily discounted Government sell-off?

Yes. Out of Railtrack's pre-privatisation profits, the company is using pounds 69m to fund a dividend in October. A further dividend will be payable in February. The two payments are worth about 11 to 12 per cent of the 190p price of each part-paid share sold by public offer. This price is discounted: institutions and retail-tender bidders will pay more.

A further 15p-a-share discount on the second instalment is on offer for those registering through the UKPO. The cost of the second instalment, due next year, will be known on 20 May.

Alternatively, you can opt for one free share for every 15 bought through the UKPO and held until the end of May 1999.

The shares are designed to be attractive for investors to hold for the first year at least, particularly for those wanting tax-free income from a single-company PEP. Spreading the instalments over two tax years allows investors to use both PEP entitlements.

How do I buy Railtrack shares?

If you are registered through a Share Shop, you should have received a mini-prospectus and an application form. Fill in the form and return it with a cheque. The minimum number of shares you can buy through the public offer is 200 - an initial outlay of pounds 380. The maximum is 800 shares. The amount you receive could be scaled back depending on applications made, in which case you will receive a refund. Only one application per person is allowed.

How much are the dealing costs?

Buying Railtrack shares costs nothing. Selling them depends on the broker you use. The commission starts at about pounds 7. Many Share Shops offer family packages, with commission charged on the total value of the deal.

If you intend to sell out quickly, choose a dealer who gives you the individual share certificate rather than holding the shares through a nominee account. Then you can take advantage of the best deals. Most Share Shops offer the choice.

What if I didn't register for the public share offer?

You can still apply for both the UKPO and the retail tender offers, but minus the discount. For retail tenders there is a minimum bid value of pounds 3,000. You have a choice between deciding your own price for the shares, or bidding on a "strike-price" basis, which means you will pay the institutional price.

What about PEPs?

You may place up to pounds 3,000 of Railtrack shares in a single-company PEP. This allows your investment to increase in value and pay out income, where needed, free of tax. After allocation, you will be given 42 days to put your shares in a PEP, free of transfer charges or commissions. If you are applying through the retail tender offer, you will be given priority in the allocation. But you must state your intention of putting shares in a PEP at the time of application.

Which Share Shop?

Some Share Shops offer "bribes" - entries in draws to win exotic holidays, cheaper dealing costs and so on, but you must move fast.

All the high street banks, plus Cheshire, Skipton, Norwich and Peterborough, Darlington and Yorkshire building societies are appointed Share Shops.

Brokers include Albert E Sharp (0121 2002244), James Brearley & Sons (01253 28686), Chelsea Financial Services (0171-351 6022), Hargreaves Landsdown (0800 929394), Killik & Co (0171-461 4400), The Share Centre (0800 800008), Sharelink (0121-687 8000).

If you want to PEP your shares, ask what the annual management charges are. They range between 0.6 per cent and a flat six-monthly fee of pounds 7.50.