From my Saturday column in the FT

http://www.ft.com/cms/s/0/0c180dfa-0ef0-11e2-ba6b-00144feabdc0.html#axzz28gv6hl81

It’s 10 years since Sir Richard Mottram, then the permanent secretary at the Department of Transport under Stephen (“Bozo”) Byers, produced his famous summary of the state of affairs there. Alas, it’s not suitable for repetition here, but it ended “…It’s been the biggest cock-up ever and we’re all completely ****ed.”

It seems that only the dramatis personae have changed in the ensuing decade. Transport remains way down the political pecking order, with a staff to match. Those of us who dismissed Sir Richard Branson’s protests at the loss of a lucrative franchise as sour grapes have been proved wrong. The case for handing it to FirstGroup would have collapsed in front of a judicial review, and the ensuing collapse in the First share price rather gives the game away.

First desperately needed this franchise. Merrill’s analysts are now questioning the dividend, while Cazenove’s see the risk of a rights issue. The rail franchise bid process is too complicated for any single person to grasp in its entirety, but to an oustider it looks far from symmetrical; the cash pours in during the early years, but when it’s supposed to pour out to the government later on, the operator can walk away and pay a trivial penalty. First’s “security deposit” was just £200m, on a contract worth £13bn, and Sir Richard argued that its bid was so risky that £600m would have been nearer the mark. That sum would have further strained the First balance sheet.

We should not look for conspiracies when events can be explained by cock-up, and the Transport department has plenty of form here. Only recently did they slide out some reworked sums on the new rail line to Birmingham, admitting mistakes and concluding that the return on investment is so poor that it’s not worth doing. If that particular high-speed white elephant never gets started, this franchise scandal may produce something positive after all.

Give no quarter

Quarterly reporting is the cocaine of the stock market (so is cocaine, but that’s another story). Analysts and traders are hooked on their three-monthly fix, and just as with the real drug, nobody knows how to wean them off. Now Ed Miliband has called for a withdrawal from the habit.

Transparency is all very well, but three months is a short time for all but the most rapidly-evolving businesses. Producing frequent figures for public delectation, coupled with a day’s grilling from analysts and journalists, is an unproductive use of expensive executive time. Today, companies can skip quarterly reports, but they must publish interim management statements  which amount to much the same thing.

The problem is getting off the drug. A single company abandoning quarterly reporting immediately raises suspicions that things are going wrong, but the management hopes it can fix them, given another three months. If everybody goes cold turkey, then that problem is avoided. Those who really, really want to go for continuous exposure can do so, but for the rest, a decent period of silence would be appreciated.

Leadin’ the way

After its not-so-leaden recent performance, Britain’s biggest plumber finds itself in the agreeable position of having too much money. Wolseley has almost made taps and pipes sexy, with the share price doubling in a year. Rather than pour the cash down the drain of an expensive acquisition, the plumbers hoiked up the dividend, but there’s plenty left.

A share buy-back programme must have looked tempting. Fewer shares outstanding means more earnings per share, while the buying generates broking and market-making fees. But the prices paid in the market often look silly in retrospect, and the buy-back process boils down to paying some shareholders to go away at the expense of those who remain. In most cases it destroys long-term value.

Wolseley has eschewed this popular, unfair practice and is instead dishing out £350m as a special dividend. Some shareholders will pay more tax on the income than they would on capital, but those shareholders might also prefer to chose when to sell their shares. So well done, you plumbers.

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