FINANCE AND INVESTMENT
By CUSTOS FIRST impressions of the Budget in the City were favourable. The benefits, are meant to evoke enterprise ; and if they prove effective, there may be more rewards to come. This perhaps is the outstanding feature of the Budget which distinguishes it from the series of Socialist Budgets, with their tacit discouragement of hard work, thrift and risk-taking. No tears have been shed at the impending lapse of E.P.L., while the restoration of initial alloWances, on a modi- fied scale, will encourage industrial re-equip- ment. These two reliefs will cost nothing in the current financial year, and the burden will fall on later Budgets. To this extent the Chancellor's concessions to industry, apart from the 6d. reduction in income tax, are a post-dated cheque which may curtail benefits in future years. The market responded to the Budget on Wednesday with a fine all- round flourish, but the best prices of the day were not held. Profit-taking was partly responsible ; but there were fears that the large below-the-line deficit portends big new gilt-edged issues before long. Doubts are felt also about the adequacy of new savings to cover the " overall " deficit of £440 millions and the hoped-for surplus in the balance of payments (which calls for an excess of production over domestic con- sumption) in addition to industry's capital programme. This may seem to be an academic point, but it could be vitally important, particularly if the new peace policy of the Communist world should cause further economic unsettlement.
Budget Beneficiaries Of all the companies which will be helped by the end of E.P.L., Aveling-Barford would appear to benefit the most. No less than £113,000 was provided out of last year's profit for E.P.L., or nearly four times the net sum of £29,531 needed to pay the 15 per cent. Ordinary dividend. In spite of this heavy provision, the dividend was covered over ten times by available earnings. The company, which is famous for its road- rollers, has a very strong balance-sheet, and the 5s. Ordinary units, now around 17s., have a net asset value of 25s. Even this seems an undervaluation, for the book value of fixed assets, on which a trading profit of over £1,000,000 was made last year, is only £694,000. Although the yield on the units is no more than 4.4 per cent. at the current price, they do not appear to be overvalued in view of the obvious scope for a higher dividend if earnings are maintained at their recent level.
Another beneficiary is International Com- bustion (Holdings) whose 5s. Ordinary units I mentioned here a few weeks ago. These are now around 14s. to yield 5.35 per cent. on last year's dividend which was equal to 15 per cent. on the present capital. The dividend was covered more than three times by earnings after providing £190,000 for E.P.L.—equal to a further- 18 per cent. gross on the Ordinary capital.
Beechams and Coca-Cola Mr. Butler's announcement of the pur- chase of 1,000,000 tons of surplus Cuban sugar and the prospective ending of sugar rationing had a stimulating effect on a number of stocks, including United of Havana Railway Debentures, Tate and Lyle and Manbre and Garton. Even tramp shipping shares were helped, for it will take one hundred ships, each carrying 10,000 tons, to transport 1,000,000 tons of sugar, which represents 45 lb. for every man, woman and child in this country. Another company which should benefit from the ending of sugar allocations is the Beecham Group which, in conjunction with Watney, Combe, Reid & Co., holds the rights to bottle and sell Coca-Cola in South-East England and certain northern counties. Some months ago .the chairman of Watney, Combe said that the demand for Coca-Cola far exceeded supply, but production would be limited until sugar was derationed. Even then, he added, some years must elapse before any great benefit could accrue. The Beecham Group, of course, has very many other activities—in medicinal products, foods, toilet preparations, cosmetics, tooth- pastes and agricultural and veterinary products. Earnings for each of the three years to March 31st, 1952, exceeded 90 per cent. on the Deferred shares, and dividends of 40 per cent. have been paid every year. For the year to March 31st, 1953, interim dividends to date are unchanged at 36 per cent., and there seems no reason why the total payment should not be maintained at 40 per cent. On this basis the shares, now around 12s. 3d., yield over 8 per cent., and I should not oppose a purchase.
Gold and Wine Few mining finance companies can have so diverse a collection of interests as H.E. Proprietary. This company has large holdings in Luipaards Vlei (a South African gold-uranium mine), Anglo-Huronian (a Canadian company with interests in gold mining, air-prospecting and Rhodesian Asbestos) and other mining enterprises, together with controlling interests in Spring- well Table Water Co. (producers of " Moussec " wine) add Metalion, which specialises in electroplating. The last balance-sheet (at December 31st, 1951) showed a net asset value of 46s. 9d. per 10s, share, based upon market values of quoted securities at that date and book values for the remaining assets and liabilities. The shares of both Luipaard's Vlei and Anglo- Huronian have appreciated since then, and the current value of quoted investments is probably higher than at the end of 1951. The 10s. shares of H.E. Proprietary, now around 41s., are thus well backed by assets. For each of the six years 1946-51, the annual dividend of 20 per cent. was supplemented by a 10 per cent. bonus, and at the current price of the shares the yield is over 74 per cent. The 30 per cent. distribution has been well covered by earnings, which have ranged between 45.4 per cent. for 1949 and 56.2 per cent. for 1951. Having regard to the good earnings and dividend record and the possibility of appreciation if the price of gold should be raised, the shares seem suitable for investors who would like to take a modest interest in gold mining without excessive risk. For the more speculatively minded, Luipaards Vlei seem to offer greater scope for appreciation, for the uranium plant should come into operation next year. At 27s. 9d. these 2s. shares yield just under 41 per cent. on the dividend of 621 per cent. for 1951-52, without allowing for Dominion tax relief ; but last year's earnings exceeded 100 per cent. and the pros- pect for higher dividends seems faVourable.
Bell's Asbestos Yield Having called attention in the past to the merits of the 5s. Ordinary shares of Bell's Asbestos and Engineering, I feel justified in reviewing the shares again in the light of the latest profit and dividend statement. For 1952 group profit is up by £138,860 to a new peak of £608,079. After providing £388,774 for taxation, an increase of £98,538 on-the preceding year, the group net profit has risen from £178,983 to £219,305. It is not surprising that, on the strength of these figures, the board has seen fit to recommend a further increase in the Ordinary dividend, A year ago the Ordinary payment was raised from 35 per cent. to 40 per cent. It is now being stepped up to 45 per cent. This decision is quite consistent with cautious distribution policy, which is appropriate to an expanding business. The figures show that the 45 per cent. dividend is, covered about four and half times by available net earnings. Bell's Asbestos is a specialist engineering concern, supplying asbestos products and engineering equipment under the " Bestobell " and other trade marks. Materials are obtained from Turner and Newall under an agreement which assures continuity of supplies. Following the increased profits and dividend the 5s. Ordinaries have moved up from 36s. 3d. to 38s., but they are still yielding nearly 6 per cent. on a well-covered dividend. They are an attractive long-term industrial investment.
Maple Asset Values In the stores share group Maple & Co. have provided one of the year's disappoint- ments. Group profits - for the year to January 31st have tumbled from' £571,081 to £287;657, and after tax the net amount has come down from £207,023 to £105,121. These results exclude the trading figures of the South American subsidiary, but the directors point out that this offshoot also had an unsatisfactory trading experience. Profit was about £78,000 before charging British tax, against £98,689 after tax. The Maple board have, therefore, cut the Ordinary dividend from 121 per cent., which included a 21 per cent. cash bonus, to 71 per cent., and the £1 Ordinary units have come down from 29s. to 25s. 3d. At this level they are beginning to look attrac- tive, in the light of the company's past trading record and the strong assets position. Between 1947 and 1952 Ordinary dividends have ranged between 10 per cent. and 15 per cent. and the £1 Ordinary units have stood as high as 50s. It is also worth noting that in his latest statement Mr. Charles Regnant president of the company, discloses that an improvement in trading, experienced in the second half of the past financial year, has continued into the current year at a moderate pace. As to asset values, a significant change in the latest balance-sheet- is that the bank overdraft of £445,614 has been paid off mainly thtough a reduction of stocks. An analysis of the balance-sheet figures produces a total asset value for the Ordinary shares of 46s. 8d. a share. Yielding practically 6 per cent. on the reduced dividend and selling at not much more than one-half of the book- value of assets, Maple's £1 Ordinaries look an interesting proposition at 25s. 3d.
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