Brokers lukewarm on Railtrack prospects

PETER RODGERS

Business Editor

Railtrack's profit after tax will fall next year and will not regain the 1995-96 level even by the end of the decade, according to a downbeat analysis yesterday from SBC Warburg, global coordinator to the privatisation.

The brokers warned that the scope for Railtrack to grow its revenue in the near term was limited, although there was "some potential" to generate property development profits of about pounds 11m a year.

The analysis is likely to be read as confirmation of the widespread view in the City that Railtrack will be lucky to fetch pounds 2bn. It will also increase the pressure on the government to write off a large part of Railtrack's pounds 1.65bn debt ahead of the flotation, reducing interest charges and raising profits, as the chairman, Bob Horton, has sought.

The authors, Wyn Ellis, Andrew Fitchie and Bill Dale, said their numbers should not be construed as a profit forecast and they disclaimed any connection with SBC Warburg's role in the share sale. Nevertheless, their analysis is bound to influence City expectations.

Warburg suggested that pre-tax profits, including exceptionals, would be pounds 178m in the year to March, pounds 11m lower than last year. Next year they would rise to pounds 195m, reaching pounds 210m in 1997-98, pounds 230m in 1988-99 and pounds 251m the following year.

After-tax profits will benefit for the next two years from tax relief inherited from British Rail. The net profit will double this year to pounds 203m, fall to pounds 168m next year and by 1999-2000 they believe net profits will climb back only to pounds 191m.

Improved efficiency and cost cutting were likely to be the main drivers of Railtrack's near term profit, with savings of 3 per cent a year on maintenance."There is great scope for using people and technology more efficiently" the analysts said.

They described Railtrack's main qualities as substantial asset backing, a predictable revenue stream in a stable regulatory framework and a "substantial cost base" that would allow efficiency improvements.