'Misery line' produces plenty of cheer

Somebody clearly knows something about rail franchises that the government appears to have missed. Shares in Prism, the first train operating company to be quoted on the stock market since nationalisation of the railways in 1947, doubled on their first day of trading on the AIM market, an amazing start for the new owner of the notorious "misery line" from London to Tilbury and Southend. It was a far from miserable day for the new owners of the line, who were the second time winners.

A management buyout team was kicked out in February, after allegations of ticketing fraud, and the franchise process had to start again. Some of the premium can be explained away by the mania for new issues at the moment. But not all.

Basically what it means is that the City thinks there's a big profit to be had in them there trains.

This is a touch embarrassing for Sir George Young, the transport secretary, because it suggests that at the first public test the market thinks he is selling franchises on the cheap - or rather with too high a subsidy, since potential franchisees compete on the level of government grant they judge can make an operation viable. In the case of the misery line, the initial subsidy is more than half the revenues, of pounds 54m last year.

By cutting costs and jobs, introducing more flexible working for drivers and other staff, and no doubt raising fares where the rail regulator and passenger resistance permit, Prism could shortly be delivering all the state subsidy and some into the hands of shareholders. The City clearly thinks the scope for cost cuts and profit in these franchises dramatically bigger than the Government thought.