FINANCE AND INVESTMENT
By CUSTOS
THANKS to a crop of encouraging news, markets are holding their ground. On the external front the achievement, now disclosed, of balance in the United Kingdom's accounts with the outside world, in the first half of the year has confirmed' the City view that, temporarily at least, the crisis of the pound has been surmounted. Inter- nally, the subscription of £317 million in cash to the new funding loans practically assures a success for the Chancellor's operation in the gilt-edged market. But there remains the falling tendency of exports and the mounting Exchequer deficit, both of which must restrain enthusiasm. Firm but not buoyant markets seem to me to be indicated over the coming weeks.
Eastwoods Progress Under the enterprising direction of Mr. George Miller Eastwoods, Ltd., the brick and cement makers and builders' merchants, forge steadily ahead. For the year to March 31st record results again bear witness to the benefits of the group's programme of capital improvements and extensions. Larger outputs of all the various manufacturing undertakings, comprising production of cement, bricks, tiles and concrete products, as well as better figures for the building materials distribution business and the coal merchanting interests, are reflected in a rise in group trading profit for the year to March 31st from £454,613 to a new peak of £691,369. The tax-gatherer takes his toll of additional earnings in an increased taxation provision of £305,913, against £170,285, and depreciation absorbs a sub- stantially larger sum at £174,822, against £141,987. After allowing for these heavier charges net profit attributable to the parent company has risen from £121,322 to £184,980, and the dividend on the Ordinary stock, which was raised from 12 per cent. to 15 per cent. for 1950-51, is now maintained at the higher rate. This 15 per cent. is covered by a large margin of earnings which, on the group figures, work out at about 34 per cent. General reserve gets £50,000, and £46,000 is added to the balance carried forward. The group is obviously well placed to take full advantage of the Government's energetic housing drive, and the £1 Ordinary units, yielding 64 per cent., at 45s. 6d. still look a most attractive purchase.
Chemicals' Profit Warning I congratulate Mr. Edward O'Neal, the American chairman of Monsanto Chemicals, on his decision to supplement his interim dividend announcement by an up-to-date review of the company's trading progress. This is an American practice which, specially in these days of rapidly changing conditions, might usefully be copied by other boards of directors. He maintains the interim dividend at 64 per cent., but in doing so reports that the company has been affected by what he describes as the deflationary conditions which have been" experienced with increasing severity this year. Turnover for the first eight months of 1952 is slightly in excess of that of the corresponding period of 1951, but it has fallen somewhat short of the board's expectations and trading profits have been materially affected by the need to reduce prices. Mr. O'Neal points out that about one-third of Monsanto Chemicals' turnover is traditionally direct exports and that, although this percentage has not only been maintained but in fact slightly increased, prices in many directions have had to be substantially reduced to meet severe foreign competition. In the home market cuts have been necessary to maintain turnover and to meet the needs of consumer industries for a more competitive basis for the sale and export of their own products. Fortunately, this is not the whole story, and Mr. O'Neal points out that in some directions there have been during the past few weeks indications of a rather more encouraging nature. Nevertheless, he re- frains from making any predictions as to the results for the full year. For 1951 a 64 per cent. interim was followed by a final payment of In per cent., making a 224 per cent. total, which came out of favourable net earnings of just over 60 per cent. It is obvious, therefore, that to jeopardise the 221 per cent. rate there would have to be a very substantial setback in trading results. On the other hand, the 5s. shares, which have fallen from 27s. to 26s. following the interim statement, are still priced to give the low return of under 44 per cent. As a long-term investment these shares seem to me to be a good holding, but in present conditions, in which the advantages of a growth situation appear to be counter- balanced by the onset of keener competition, one must accept the fact that the speculative possibilities are correspondingly reduced.
Stilfontein Surprise News of further financing by Stilfontein Gold Mining, the developing proposition on the Far West Rand, has come as a surprise to the City. This company is' raising about £1 million of new money immediately and a further £600,000 by the end of next year. The explanation is not that original estimates of the company's requirements have been falsified by rising costs but that the company's production programme is being speeded-up, with the result that this mine will be brought into full-scale production considerably earlier than was at first planned. This decision to accelerate developments has been prompted partly by the wish to exploit the company's big potentialities in the uranium field with the minimum of delay and partly by the fact that a richer grade of ore is being mined than was previously expected. The financing scheme is ingenious. Holders of Stilfontein 5s. shares are offered one new share for every ten held as "rights" at 18s. each, but this offer is being made more attractive by the issue of three options to take up one further share for each two new shares subscribed. The option price has been fixed at 22s. 6d. and this right may be exercised at any time from December 30th, 1952, until November 30th, 1953. At present the existing shares are quoted in the market at 23s. 9d. The plan also compensates holders of Stilfontein 55 per cent. loan stock for a proposed increase from £5,500,000 to £8 million in the company's borrowing powers. The first conversion right which at present attaches to this loan stock entitling holders to convert £25 out of every £100 of stock held into 18 Ordinary shares (equivalent to 27s. 9d. a share) is to be amended so as to provide for conversion of that amount of stock into 22 shares (equivalent to 22s. 9d.) The final date for extending this right will be extended from December 30th, 1952, to November 30th, 1953. For those who have patience and do not mind the risk attaching to all developing gold propositions the shares look one of the most attractive in the Kaffir market. I would certainly advise holders to exercise their rights.
A Pastoral Stock Following the announcement of the results for the year to March 31st, 1952, the £100 stock of the New Zealand and Austra- lian Land Company, an old-established pastoral undertaking with good Scottish management, has been a firm market around £145. At this prise it yields nearly 105 per cent. on the 15 per cent. dividend and in my view is good value for money it this price. The latest results, admittedly, were partly attributable to the receipt of money including refunds from the wool stabilisation and realisation schemes which have now been wound up, but this company has shown its ability to do well on its wool trading, and in his annual statement the chairman des- cribes the prospects for the current season as being favourable. In the pastoral business there are considerable fluctuations from one year to another but this company is strongly placed to meet them, in that it has built up a financial position of unusual strength. Four years ago it paid off its £500,000 of Preference stock and repaid another £500,000 to the Ordinary stock- holders out of surplus liquid resources, and it seems to me that, even allowing for the board's policy of buying new property as an offset to the loss of leases taken over by the authorities, there could easily be another capital repayment. At one time last year the stock was quoted around £190 and in 1950 it touched £158.
Burmah Oil Prospects These are dull days for oil investors. Even the announcement of the reintroduc- tion of branded petrol has failed to kindle much enthusiasm on the Stock Exchange, despite the fact that world consumption of oil products is still increasing and prices are holding up well in face of rising costs. In a more cheerful market environment the decision by Burmah Oil to pay a 24 per cent. interim might have been expected to bring in investment support. This 24 per cent, although the same rate as a year ago, is equivalent to 34 per cent. on the Ordinary capital as it stood before the recent one-for- two scrip bonus. Admittedly, the board with characteristic Scottish caution qualify their announcement with a warning that this payment is not to be taken as implying a larger total for the year compared with 1951, but it still seems a reasonable inference that, if all goes well, this year's total may be 15 per cent., as against the 14 per cent. which would be the precise equivalent of last year's payment. With its large invest- ments in Anglo-Iranian and Shell, the Burmah company is strongly placed, especially as to last year's dividend so covered by an ample margin of net earnings. If, in fact, 15 per cent. is forthcoming, Burmah £1 Ordinary units now quoted around 44s. 6d. to yield 64 per cent. look definitely undervalued.
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