Jarvis shares halve after rail crash

Investors have been selling their stakes in Jarvis as fears increase that it will face expensive negligence claims over the accident, even though it is believed to be insured for more than £150m.

The City is also concerned about how the crash will affect Jarvis's ability to win future work from Railtrack.

Seven passengers died in the crash on 10 May, which occurred on the 12.45pm train from King's Cross to King's Lynn in Norfolk. Investigators have narrowed down their search to defects at points near the station in Hertfordshire.

Shares in other maintenance contractors, such as Amey, Carillion and Balfour Beatty, have also been hit this week as the City took fright at the prospect of Railtrack reviewing its maintenance programme.

KBC Peel Hunt construction analyst Stephen Rawlinson said: "The price drop for Jarvis and the others is the City taking out an insurance policy. It doesn't know what's going to happen, so there's been a lot of selling."

Analysts say investors are concerned about Jarvis' heavy reliance on rail contracts. This has increased significantly and the firm is now Railtrack's leading rail maintenance contractor, with 21% of the market. Rail infrastructure work accounts for 49% of turnover and 52% of operating profit.

Rawlinson said: "Investors are now asking themselves whether they want to be exposed to a company that has such a reliance on rail."

Carillion and Balfour Beatty each covers 18% of the rail maintenance market but rail work makes up a much lower proportion of their total turnover than Jarvis'.

Investors are now asking themselves if they want to be exposed

Analyst Stephen Rawlinson

Transport union the RMT has already heightened investors' anxiety with a call for maintenance to be taken in-house by the successor to Railtrack.

One rail expert, however, dismissed this recommendation. The expert said: "It's a near impossibility to go back from subcontractors. All the people who do maintenance are employed by the main contractors such as Jarvis and Balfour Beatty. You would have to cancel all the existing contracts and recruit people back from the contractors into Railtrack. I can't see that happening."

Railtrack has already reviewed its rail contracts, and announced a trial scheme in February that would result in it taking direct responsibility for planning and monitoring rail infrastructure. Balfour Beatty is piloting the scheme in its Wessex region.

Network Rail, the body favoured by the government to take Railtrack out of administration, was also reported to be looking at expanded rail maintenance contracts, which would last for 15 years rather than the usual five.

The firm, which Jarvis is advising over maintenance, said it is looking at raising the amount pencilled in for maintenance by 10-15%. Railtrack expects to spend £900m on maintenance this year. Network Rail, which is headed by former Ford boss Ian McAllister, is raising £9bn to pay off Railtrack's debts.

Rail sources claim that the Potter Bar crash will increase pressure on the government to take Railtrack out of administration.

One source said: "Potters Bar will accelerate the pace of that process. Until the government settles all the uncertainty about Railtrack in administration, people will say nothing has been done."