FINANCE AND INVESTMENT
By CUSTOS Btiooer shadows across the stock markets are now perceptibly lengthening and there is much less business than a few weeks ago. Gilt-edged prices and the general level of home industrials have slipped back a little but so far the movement has been sur- prisingly small. Higher dividends and the Obvious preference of the majority of inves- tors for holding stock rather than a balance at the bank are providing strong counter- influences to international political uncer- tainties, the coming Budget and the hesitancy in the commodity markets. New capital issues, which are now being rushed through in advance of the Budget, are being taken up remarkably well. The indications are, there- fore, that while markets are likely to remain quiet at least until Mr. Gaitskell opens his Budget on April 10th, any fall' in prices is unlikely to be really severe. I shall not be surprised to see some improvement in gold shares over the coming weeks.
Higher Dividends Defended Two company chairmen equally renowned for their strong views on the merits of private enterprise and the defects of Government planning have issued their annual statement to shareholders this week. Mr. Halford Reddish, chairman and managing director of the Rugby Portland Cement Company, is able once again to point to a record output of his group, which is reflected in a new peak level of earnings. He has little difficulty, against the background of last year's trading results, in defending his decision to raise the Ordinary dividend from 17+ per cent. to 20 per cent. So far as the current year is con- cerned, he takes a reasonably confident view. The company will have the benefit. of still more new plant coming into production, which should enable output to be substan- tially increased. Rugby Cement 5s. Ordinary shares still look a progressive equity invest- ment around 21s.
. A similar success story is unfolded to shareholders of Hoover Limited by Sir Charles Colston. This group achieved new records in both home and export markets. Last year turnover was seven times as large as in 1938, the company's best pre-war year. Sir Charles's views on dividend policy are expressed in the clearest terms. " I do not think it would be right for any responsible board of directors to embark on a policy of expansion risking the loss of their share- holders' money if things go badly, but giving them no benefit if things go well." Those who put their money into the Hoover enter- prise in the early development years have done well but I see no reason for thinking that the scope for expansion is exhausted. Quoted around 27s. 9d. Hoover 5s. Ordinary' shares are giving the attractive yield of just over 61- per cent. on the 37} per cent. divis dend rate.
Guest Keen Prospects With the announcement of the value agreed between the stockholders' representa- tive and the Ministry of Supply for the Ordinary capital of Guest Keen Baldwins Iron and Steel Company it becomes possible to calculate within only a small margin of error the total amount of compensation for its nationalised steel interests which accrues to Guest, Keen and Nettlefolds. G.K.N.'s holding of Guest Keen Baldwins Ordinary is 2,100,102 £1 shares. which at the agreed value of 55s. each gives a compensation value in Steel stock of £5,775,000. To this have to be added the £921,644 derived from the Preference holding in Guest Keen Baldwins ; another £5,250,000 from Guest Keen (South Wales) ; £3,606,800 from the holdings in the Steel Company of Wales and £2,023,200 from John Lysaght's Scunthorpe Works. This gives a grand total of approxi- mately £17,600,000, an impressive figure. There remains to come in the compensation for the holding of 590,763 £1 Ordinary shares in Brymbo Steel Works, which in the market is thought likely to yield another £1 million. It appears, therefore, that Guest, Keen and Nettlefolds' total compensation in Steel stock can be safely put at £18,500,000, which is equivalent to 32s. a share on the £1 Ordinary shares.
As I pointed out in analysing the situation on February 16th, there can be no certainty that even this large compensation sum, which is substantially higher than most recent esti- mates, will result in a large repayment of capital to Guest Keen Ordinary shareholders. In a recent notice the Board gave a reminder that the group's expansion plans, particularly in Australia, will require approximately £12 million. It would seem wise, therefore, not to budget on a repayment exceeding £6 million. or, say, 10s. a share. it is-doubtless the realisation that most of the compensation money will be ploughed back into the long- term development plans of the company that has prevented Guest Keen Ordinary shares from moving up in recent weeks. At 53s. they still look good value, both on the assets. and on the earnings outlook. For 1950 the interim has already been increased from 4 per cent. to 5 per cent. and the market expectations are that the total will be some- thing between 12+ per cent. and 15 per cent.
Profit? from Diamonds It was a foregone conclusion from the new record of diamond sales established last year that the profits of De Beers Consolidated Mines, the world's largest diamond producer, would show a spectacular increase. From the company's preliminary statement it is apparent that profits, before tax, rose by over £3 million to a new peak of well over £10 million. Last year's net profit was £7,880,684, after providing £2,500,000 for taxation. For 1949 the net figure was £5,691,568, after allowing for a taxation charge of £1,525,000. On the strength of figures such as these the De Beers Board could easily have made a correspondingly sharp increase in the dividend, especially as the 1949 total of 90 per cent. was well covered by that year's earnings. Following their traditionally cautious distribution policy Sir Ernest Oppenheimer and his co- directors have merely raised the cash bonus from 30 per cent, to 50 per cent., thus in- creasing the total distribution from 90 per cent to 110 per cent. This decision caused some disappointment on the Stock Exchange,
where optimistic speculators had been hoping for at least 120 per cent. In conse- quence, the 5s. Deferred units have fallen a Kew shillings to 54s. 61 At this level they are offering rather more than 10 per cent. without making any allowance for Dominion tax relief. There is also the point that it seems unlikely that last year's profits of De Beers included anything from the reopening of the Premier Diamond Mine. So far this year sales both of gem diamonds and of industrial diamonds have kept up well and there has recently been an increase in selling prices. Investors will not lose sight of the fact, however, that America is by far the largest consumer and that the demand for diamonds is thus closely linked with the level of American prosperity. The shares at their present price, to yield just over 10 per cent., seem to me to be fairly valued in current conditions. They are worth including to raise the average yield in a mixed portfolio.
A Chemical Share
Among the many companies now raising new money from their shareholders for ex- pansion purposes and to finance the carrying of larger stocks is F. W. Berk and Company, the chemical manufacturers. This concern, which has recently enlarged its Ordinary capital very substantially by means of scrip bonuses so as ,to bring the issued capital more closely into line with the real capital employed in the business, is making an issue of new 2s. 6d. Ordinaries at 5s. 3d. each. The shares are offered to existing share- holders in the proportion of two new shares for every three held. At the moment they are being deal( in as " rights " on the Stock Exchange and the price is around 9d. premium. This means that anyone who buys the " rights " at 9d. is incurring the liability for putting up the 5s. 3d. in cash and is thus acquiring the shares in_ their fully-paid form at the equivalent of 6s. An attractive feature is that these new shares are free of stamp duty.
This seems to me a good opportunity of acquiring a stake in a progressive chemical concern whose earnings have been steadily' increasing for many years. The dividend on the enlarged capital should be at least 14 1/6 per cent., on which the shares at the present price of 6s. will be giving a yield of £5 18s. per cent. Founded in 1870 this com- pany and its subsidiaries are engaged primarily in the heavy chemical industry and carry on business as manufacturers and dealers in a wide range of chemical products. In present conditions the business may be affected to some extent by the current shortage of sulphur and zinc but the output of these two products represents only a small fraction of the total turnover.
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