Venturers' Corner These are poor days for engineering shares, not
in the sense that they are not paying good dividends—they most certainly are—but from the standpoint of capital value. At the moment investment and speculative fashion has swung right against armament and near-armament shares, partly because of the Government's threatened Bill to limit profits, and partly because of the obvious vulnerability of earnings in the event of an outbreak of peace. While I do not suggest that either of these factors should be ignored, I am convinced that both are given undue weight in the current market
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FINANCE AND INVESTMENT
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quotations of a wide range of shares. A case in point is Kitchen & Wade, the Halifax makers of drilling and boring machines, established in 1919 and registered as a public company in 1936. This company's 4s. shares stand at t8s., and the dividend, which is being paid out of earnings of roughly 65 per cent., is 55 per cent. As the price still in- cludes the final dividend just declared, the yield is approxi- mately 13 per cent.
This seems to me to be an unduly cautious valuation of the shares, even allowing for the fact that profits are at a record level. In the report it is made clear that the rise in profit from £52,138 to £63,216 for the year ended March 31, 1939, reflects a general expansion of business, both in home and foreign markets, rather than rearmament business. Orders directly attributable to defence have increased, but they still constitute " only a small proportion of total turn- over." I like the way the balance-sheet position is being built up. Goodwill is written down to the nominal figure of £1, a sum of Li o,00 goes to reserve, and the cash holding has been increased from £55,226 to £66,518, or over half the issued capital. In the light of the company's prospects the shares look to me to be a good speculative holding, both for income yield and capital appreciation.
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