Railtrack shares slump

Railtrack's fortunes have dived since the Hatfield crash

Shares in Railtrack have plunged to an all-time low, virtually guaranteeing the relegation of the troubled rail network operator from the FTSE 100 stock market index.

Railtrack looks certain to be replaced by fashion group Next when the elite index is rejigged based on market values after the close of trade on Tuesday.

We believe there is a realistic possibility that the equity could be wiped out. Based on our expectations of performance, we value the shares at only 58p.

ABN Amro

The share slump is likely to lead to renewed calls for Railtrack to be re-nationalised.

In April, Transport Minister John Prescott rejected calls for re-nationalisation on the basis that it would cost £4bn, its market valuation at the time, and take two years to implement.

Since then the company's market value has dropped further.

Its shares traded at 1,040 pence at the start of the year but they are now below their offer price of 390p at flotation in 1996.

By the end of trading on Tuesday, its share price was down 73.5p, or 17%, to an all-time low closing price of 364.5p.

The rout was sparked by Dutch investment bank ABN Amro, which valued shares in Railtrack at only 58p, putting the whole company's worth at only £297m, because it felt the company faced funding and operational problems.

FTSE re-jig

Fashion retailer Next was trading at 969p on Tuesday, having risen from 785p in January, giving it a market value of £3.265bn.

Next looks set to enter the FTSE 100

Others queuing up for FTSE 100 membership are Enterprise Oil, Smith & Nephew, Gallaher, British Land and Man Group.

But unless they turn in a strong performance on Tuesday or other existing FTSE 100 members take a dive, they look set to be put on the reserve list.

Other companies teetering on the edge of relegation are United Business Media, Spirent and CMG.

Railtrack downgrade

"We believe there is a realistic possibility that the equity could be wiped out. Based on our expectations of performance, we value the shares at only 58p," ABN AMRO said in a research note cited by Reuters.

"An investment case is based on the hope that there will be a large transfer of wealth from the taxpayer. This requires a massive leap of faith," the bank added, rating the stock as a "sell".

Railtrack's market value has suffered badly in the wake of last year's Hatfield disaster, in which four people died, and the subsequent rail recovery programme.

The stock has also suffered because of fears that a second-term Labour government will take some control of Railtrack's internal affairs.

FTSE league table

For automatic entry into the FTSE 100, a company has to rank in the top 90 companies by market value. For automatic relegation it has drop to 111th or lower.

Entry into the blue-chip index guarantees a stock increased liquidity because of the number of funds that track the FTSE 100.

Railtrack is ranked about 120th while Next is ranked about 85th.

Changes in the FTSE indexes will be decided on the basis of Tuesday's closing share prices and will take effect on 18 June.

Being booted out of the top 100 means a share often disappears off the radar of some investment funds.