FINANCE AND INVESTMENT
By CUSTOS
AFTER their recent rise markets have entered a quieter phase. Some of the bite appears to have gone out of the buying of industrial equities although prices are still moving up, as 1 forecast last week, slowly and cautiously. At this season it is normal for markets to suffer from holiday distrac- tions ; the significant fact is that the falling away of interest on the buying side has not prevented prices from rising. Here is the dearest evidence that the investor is not selling. He is taking the view that in present conditions good equity shares should be held —and in doing so he seems to me to be right. The steady stream of profit increases and higher dividends—accompanied by large allocations to reserves—is strengthening the case for sitting tight.
The other side of the medal—the pressure of increasing capital requirements on a dwindling volume of savings—is seen in the gilt-edged market which still seems unable to stage any real improvement. This week the annual report of the Bank for Inter- national Settlements adds its quota to the suppOrt in high places for a stiffer credit policy. Talk of even slightly dearer money bodes no good for gilt-edged prices.
Unilever Dividend Surprise
Even in these days when dividend increases come thick and fast the announcement by Lever Bros. and Unilever Limited, the soap and margarine combine, of a 1950 payment of 131 per cent., against 10 per cent., comes as an agreeable surprise. Sir Geoffrey Heyworth and his co-directors have been so insistent on the need for ploughing back, especially in times of rising prices, that the City optimists were prepared for no change, or at least for only a trifling increase. Only a glance at the group's profits is needed, however, to see that the board's decision is fully justified. Combined trading profits of the group rose last year from just under £32 million to £52,200,000. In consequence, the increase in the dividend is consistent with the retention of earnings in the business on a massive scale. The transfer to reserve for replacement of fixed assets has been raised from £4,200,000 to £4,900,000, and another £2,600,000 is set aside as reserve against stock values. Earnings cover the 131 per cent. dividend by a large margin, which suggests that the higher rate should be com- fortably maintained. Lever Bros. and Unilever £1 Ordinary units have risen sharply since the profit and dividend announcement and are now quoted around 57s. At this price they are yielding just under 41 per cent. Even allowing for the probiibility that further permanent capital may have to be raised to finance expanding business—the group has a considerable capital expenditure programme—the shares seem to me to be moderately valued. They are a " blue chip" of the highest calibre.
Courtaulds' Record Profits In the wake of imperial Chemical Indus- tries and Lever Bros. and Unilever Limited come `some record-breaking figures from Courtaulds. Group profits for 1950 have risen from just under £8 million to
£17,270,823. Consolidated net profit, after allowing for a much heavier taxation charge, has jumped from £4,207,548 to 18,221,159. It is not surprising against the background of such figures that even so conservative a body of men as the Courtaulds directors should have decided to raise the Ordinary dividend from 71 per cent. to 111 per cent In doing so they have fulfilled the expecta- tions of the more cautious City prophets, estimates in Throgmorton Street having ranged as high as 12} per cent. There is nothing profligate about the Courtaulds dis- tribution. The company is putting £1,704,692, against £1,701,679, to reserve for increased cost of replacing fixed assets, another £2,600,000, against nil, is set aside as representing the increase in the replacement cost of materials consumed during the year, and £450,000, against nil, goes to staff pen- sions. If one ignores the allocation to reserve for fixed asset replacement, earnings work out at something like 50 per cent. on the Ordinary capital, but if one takes the stricter view and deducts this allocation against net available profits earnings still work out at nearly 40 per cent. There is one word of warning in the directors' pre- liminary statement, which indicates that production, which was increasing during the early part of this year, has been restricted in recent months by shortages of certain raw materials. This is obviously a point to keep in mind, but on recent indications the raw material problem appears to have become rather less acute. With the dividend covered about 31 times Courtaulds' £1 Ordinary units standing around 51s. are offering a return of just under 41 per cent. To get perspective it is worth recalling that in 1944 the stock traded on a 2f per cent. yield basis up to 66s. I see no reason why, in present conditions, that level should not be reached again once profit-taking by recent speculative buyers has been absorbed.
Hawker Siddeley Bonus
The bonus machine at the headquarters of the Capital Issues Committee is now working overtime with a vengeance. Scarcely a day passes without an announcement that one company or another has obtained official consent to a plan for adjusting its capital structure to present conditions. Why boards of directori should have to obtain official approval for such proposals any more than for, say, dividend decisions, is more than I can understand. 1 suppose one must be thankful that at last the C.I.C. is carrying out its unnecessary duty in this particular field on common-sense lines. Among the latest crop of scrip bonuses is a 300 per cent. bonus plan put forward by the Hawker Siddeley Group. This company is, in effect, writing up its 5s. Ordinary shares to the denomination of £1. In doing so it is capitalising approximately £4,300,000 of reserves, a modest scheme when account is taken of the vast capital now employed in the group's expanding business. In the ordinary way the Hawker Siddeley announcement would have fired the market's imagination, even though the 5s. shares had recently come up from 35s. to 45s. The
board decided, however, to nip speculation in the bud by intimating in advance that they intended to supplement a 41 per cent. interim dividend now declared on the enlarged capital by a maximum final of 51 per cent. The total for the year which ends in July will thus be 10 per cent., or the equivalent of 40 per cent. on the capital at its pre-bonus figure. In recent years the dividend has been 321 per cent. With the 10 per cent. rate on the quadrupled capital clearly indicated the market has been prevented from indulging in one of its favourite pastimes—that of guessing what the new dividend rate would be. The reaction on the Stock Exchange was the understandable one of snatching profits, the effect being to lower the price from just over 45s. to 42s. 3d. At this level the indi- cated yield is just under 5 per cent. on a dividend which, assuming that earnings are being maintained, as they undoubtedly should be, during the rearmament phase, will be covered about five times. In my view the shares will present a good buying opportunity whenever they can be obtained around £2.
A a Know-How " Share It is a healthy sign that investment interest in the industrial equity market should now be spreading from the " blue chips," on which the yields are low, to shares of medium-sized but progressive companies offering more generous returns and in many instances more scope for capital apprecia- tion. Among the industrials in this category I would place the 5s. Ordinary shares of Platers and Stampers. This company is a subsidiary of Ekco Products, of Chicago. who are the largest American manufacturers of small kitchen utensils and who own nearly 70 per cent. of Platers and Stampers' capital.
• In this country Platers and Stampers are the largest concern making small kitchen utensils and have modern, highly mechanised works at Burnley, Derby and Blackburn. Pressure cookers are sold under such well-known trade names as Prestige and Ekcomatic, and the range of products includes special kitchen knives, strainers, sifters, etc. The company also controls Champion (Scissors), the largest scissors makers in Great Britain. It is an indication of the competitive strength of the British concern that exports to dollar countries were four times as large last year as in 1949. As to earnings, these have risen from 72 per cent. in 1948 to 105 per cent. in
1950 and the dividend has been stepped up from 35 per cent, to 40 per cent. Recently the company has bought an additional fac- tory, and in his annual review in March the chairman expressed his optimism concerning the company's future. The 5s. shares are now around 37s. 3d., yielding just under 51 per cent. on a dividend which is amply covered by earnings. In view of the expansion possibilities the shares should prove a pro- gressive industrial holding.
Previous page
