FINANCE AND INVESTMENT
By CUSTOS BUOYANCY is still the keynote of stock markets, and there are still very few sellers about. The general level of prices has therefore continued to rise, and there is no sign of a check to this movement. On the other hand, the holiday season is very much upon us, and it must be admitted that much of the buying that is going on has its origin in speculative rumours, with particular em- phasis on suggestions of impending mergers and hypothetical estimates of break-up values. Solid investment purchasing is not yet a conspicuous feature, and it would probably be true to say that the present firmness of markets will not really be tested till later in the summer or early in the autumn. Amongst other events that should be developing around that time will be the first public offers of iron and steel shares from the portfolio of the Inin and Steel Holding and Realisation Agency. It may be that its transactions will prove less upset- ting to the market than some observers have been inclined to expect. In particular, the possibility of tendering gilt-edged stock in payment for the equities on offer will cushion the impact that would otherwise be felt from a sudden demand for large sums of cash. Moreover, it will do much to ensure that gilt-edged prices maintain the strength that they have been showing since the beginning of July.
Engineering Export Analysis There have been several items of news this week to foster a mood of caution so far as the engineering industries are concerned. One of these • is the appearance of the Treasury's monthly Bulletin for Industry, which draws attention to the ground that the U.K. has lost since 1951 to the U.S. and Germany in the matter of engineering exports. Perhaps the most disquieting feature of this document is the reference to German export shipbuilding, where the figure has jumped from 4 per cent. of the British export production in 1951 to 50 per cent. of it in the first months of this year. On the other hand, there has been a simul- taneous decline in the exports of certain types of machinery both from this country and from Germany, and indeed from the U.S. This could be an indication that our competitive power has not deteriorated so much as might be feared.
All this furnishes additional grounds for the view that the outlook for industry and for investment in this country is still obscure and difficult to predict. At the moment there are no very precise indications of any- thing going wrong, and the present opti- mistic phase in markets may go on after the holidays. How things would be affected if the big wage claim lodged by the engineering unions were to be granted is another matter. In recent years the engineering industries have been exporting on average a third of their output. Clearly, any large increase in costs could have a most serious effect on their competitive ability.
Ruston and Hornsby Passing from the general to the particular, the chairman of Ruston and Hornsby, the oil and gas engine makers, makes some important points in his statement with the annual accounts. His chief complaint is the burden of taxation at its present level, which, he says, accentuates the difficulties of financing trading requirements and the maintenance of plant and equipment, and limits the credit that can be given in com- petition with other countries in overseas markets. He gives the following figures : financing additional stocks of £861,000, extra credit to customers of £247,000, and capital expenditure in excess of depreciation allowances £370,000, making a total of £1,478,000. This compares with the £280,000 required for the Ordinary dividend, and it illustrates the need for conservatism, in distribution policy, even though the present distribution is covered four times by the profits.
As it happens, the dividend includes a Coronation bonus of 11 per cent., and there is no promise that this will be repeated next , year. By that time, however, Excess Profits Levy will be a thing of the past, and it should be possible to make this year's pay- ment once more. On that basis the yield at today's price of 38s. 9d. would be 6.4 per cent. That seems a reasonable return for an equity of this calibre. The company has a half-share in Ruston-Bucyrus, a leader of the excavator industry, and an important stake in the Diesel locomotive industry. The use of Diesel locomotives for shunting is very much on the increase in this country.
John Brown and the Price of Tungsten The group results for the year to March 31st last of John Brown and Company, the Clydebank shipbuilders, which show a fall in net profit of £340,000 at £699,000, can hardly be regarded as typical of the ship- building industry as a whole. For one thing, the group's interests in machine tools and other engineering products account for more than a small fraction of its turnover. For another, the greater part of the decline is said by the directors to have arisen in the subsidiary companies trading in tungsten- bearing products. Firth Brown Tools, in particular, uses important quantities of high-speed steel, and it has probably had to write down its stocks to take account of the halving of the price of wolfram from its peak level of 1951.
As a consequence of the setback the main- tained Ordinary dividend of 7i per cent. free of tax is less than twice covered. This has naturally provoked a certain amount of nervous selling of the stock, and the price has fallen slightly. For all that, I do not feel inclined to recommend holders to sell. If the price of wolfram is such an important factor in the group's affairs, it is worth noticing that the market in this ore is extremely narrow, it is controlled by the Government, and it is as likely to rise as it is to fall.
Increased Timber Dividend ' Largely, no doubt, thanks to the building programme, several companies in the timber trade have recently been able to report a high level of profits. The latest is Gabriel Wade and English, one of the leading firms of merchants in the industry, with wide- spread interests in many parts of the country, both on its own account and as the parent of a group of businesses. The consolidated trading balance is not quite so high as last year, but there is a corresponding reduction in the amount provided for taxation, and the net figure attributable to the holding company is virtually unchanged.
What is equally to the point, the dividend on the Ordinary stock is raised from 15 to 171 per cent. The company has an impres- sive record of well-covered dividends. To judge by the preliminary figures the latest declaration absorbs less than a quarter of available earnings. There is a satisfactorily rising trend in the rate of dividend over the years, and the £1 stock units offer a sound way of participating in 'the prosperity that is now being experienced in the building material industry. At 46s. 3d. cum the divi- dend they yield 7.8 per cent.
F. Pratt and Company Introduction Dealings are expected to start on Thurs- day in the shares of F. Pratt and Company, whose speciality is the making of a large variety of chucks for, lathes. The company in fact occupies a leading position in this line of business, but it also turns out other mechanical items, including hydraulic equip- ment. The capital of the company is £200,000, divided into 800,000 shares of 5s., of which 640,000 have been acquired by British Shareholders Trust. The business, whose works are at Halifax, dates back to 1849, and it has been in the hands of the founder's family for all this time. The present management is continuing in office under a service agreement.
Last year's profits of £220,256 before tax were exceptional, according to the directors, but the profits for the year to August 31st next are expected to be £190,000. On this basis there would be a charge for Excess Profits Levy of £21,000. The estimated dividend is 36 per cent., and this, together with distributed profits tax, would absorb £54,000, leaving £24,750 to be carried for- ward or transferred to reserves.
The opening price is expected to be 15s. 6d. Anyone able to pick the shares up at this level will thus secure a yield of 111 per cent. This is a satisfactory return on an investment in an essential industry.
Garrard Engineering New Shares An attractive proposition among the many, new shares now available in the market free Of stamp and registration fee is Garrard Engineering and Manufacturing. This com- pany recently issued 496,472 Ordinary shares of Is. at 2s. per share, and these now com- mand a premium of just under 6d. apiece. For a total outlay of 2s. 6d. the shares offer a useful yield of 8.3 per cent. This pre- supposes the maintenance of the dividend at 21 per cent. per annum, which has been paid for the last couple of years. Last year it was covered more than three times, and the last balance-sheet showed. a general reserve and balance on profit and loss account together equivalent to double the Ordinary capital as increased by the present new issue.
The company is the leading producer of gramophone motors, and is famous for gramophone record changers and other equipment. It also makes automatic ticket numbering and issuing machines. Through an associate company, Westinghouse Garrard Ticket Machines, it has a share in the provision of fittings for the booking offices on the London Underground.
The new money is required to finance extensions to the factory premises and supply additional working capital. It should be well employed.
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