FINANCE AND INVESTMENT By CUSTOS ON appropriately cautious lines the
recovery in the Sock markets is making good progress. Australia's £111 million ash and conversion loan has left scarcely a ripple on the surface of gilt-edged prices and small but persistent buying of industrial ordinary shares has exposed the scarcity of jobbers' floating supplies. As I have emphasised in recent weeks, markets are nowadays very "thin ", with the result that only a slight excess of buyers or sellers can produce a dispropor- tionately sharp effect on quotations. All that has happened in the past three weeks is that some of the professional " bears " have decided to close their " short " positions, public selling has dried up and a few of the bolder spirits have come in as buyers on a modest scale. Why this welcome change ? Mainly, I think, because most people are beginning to feel that the long-expected setback in American business activity—the real key to the economic out- look—may still be a long way off and that our own trade recession may therefore be contained within relatively modest limits. I must add that the recent firmness of the pound, although unfortunately not the June export figures, has also helped to strengthen hopes that Mr. Butler's policies will succeed in their long-term objective of re-establish- ing our credit. The current mood is thus one of cautious hope, which finds its logical expression, after the severe fall in markets from last year's peaks, in a little quiet buy- ing. The rally may well continue on highly selective lines, but at this early stage it would obviously be wrong to look for a really strong and sustained improvement.
Banks and Gilt-Edged -After all the talk there has been about the banks' losses on their gilt-edged investments it is good to see this matter brought out into the open. This week's statement from the Bankers' Clearing House will be welcomed in the City. Quite rightly it puts the emphasis on the important point that the British Government securities held by the banks all have fixed redemption dates, the majority maturing within ten years. " As in the ordinary course of business the banks realise only comparatively small amounts of investments, and then usually in the shorter- dated securities, the fall in the market price this half-year and most of that previously provided for will be recovered in due course." Meantime, the decision by four of the " Big Five " banks to depart from their normal practice of covering gilt-edged losses by drafts on inner reserves is a reminder that in recent years these reserves have been heavily depleted. Presumably, the point has been reached when a continuation of this practice would exhaust those inner resources and necessitate drawing on pub- lished reserve funds shown in the balance- sheet. Under the banks' new book-keeping the difference is shown between book values and the actual market value of gilt-edged holdings on June 30th. The losses, fortu- nately, are not unduly large and are still amply covered by published reserves, without taking into account the reserve element implied in the substantial under-valuation of the banks' premises. W. H. Smith Results Since the introduction of the shares to the investing public in 1949 W. H. Smith and Son (Holdings), the newspaper distributors, have achieved results well up to expecta- tions. For the year to March 29th the operating company, W. H. Smith and Son, succeeded in increasing its gross earnings from £1,347,000 to £1,756,000. This 30 per cent, rise doubtless reflects the advantages of the higher selling prices for newspapers, which appear to have much more than offset further increases in costs. Total tax provision is up from £820,000 to £1,186,000, thus absorbing most of the additional earn- ings. In consequence, the group's net profit shows only a modest rise of £43,000 at £571,000 after tax. Once again the dividend on the holding company's Ordinary shares is 12 per cent. and is covered by a fair margin. The company reports that mutually satisfactory financial terms have been agreed with the Railway Executive for renewing main-line bookstall contracts for a period of twenty-one years. Following the announcement of these results the £1 " A " shares have improved from 38s. 9d. to 40s., giving a yield of 6 per cent. In view of the company's sound management and good record I regard the shares as a good industrial holding, although costs are increasing.
Bid for Grosvenor House One of the features of this week's share markets has been a jump from 3s. 44d. to 5s. 6d. in the 5s. Ordinaries of Grosvenor House (Park Lane). This movement has followed the disclosure that Mr. Charles Clore, the London financier, through his Princes Investments, is proposing to make a bid for Grosvenor House Ordinaries of 6s. a share. The plan, as outlined by Mr. Clore in a letter to the Grosvenor House board, is to acquire control of the hotel and then to put it under the management of the Hilton Hotels Group of America. This is the group which has been negotiating for some time for a licence to build a large new hotel in London in Portman Square. The problem for Grosvenor House shareholders is not, of course, to decide whether or not the fortunes of Grosvenor House could be improved by American management, fol- lowing a change in control, but whether the• bid of 6s. is one which should be accepted. Here the old question arises : should the offer be judged entirely in relation to past and prospective earnings or should asset values be taken into account ? Judged by reference to earnings and dividends—the company has paid a 6 per cent, dividend for each of the past four years-6s. looks an attractive price. Latterly the shares have been changing hands around 3s. 6d. and the highest price touched for the past two years has been 5s. 9d. If one goes further back, however, to 1947, when the dividend was 10 per cent., the shares touched us. 3d. On asset values a bid which, if it commands 100 per cent, acceptance by the shareholders, would involve only £600,000, looks rather inadequate. On the most conservative estimate of break-up the Ordinary shares look worth something over 8s. but I think shareholders should keep in mind that this is a going concern and, so far as one is aware, there has been no question hitherto of any property deal. 4PI shall be surprised if the offer does not go through.
Lewis Berger Records More competitive conditions in the paint trade have not yet found much reflection in the financial results of the leading companies.
Here are Lewis Berger and Sons reporting record production and sales, and a further substantial increase in profits for the year to March 31st. In face of rises in production costs and overhead charges the full accounts show that group profit, before tax, rose from £810,054 to £930,010, an increase of about 15 per cent. On the strength of these earn- ings the board declare a dividend which establishes an 18 per cent, annual rate on the capital as enlarged in February by a 50 per cent, bonus issue. This 18 per cent. compares with the equivalent for the preced- ing year of 15 per cent. Expansion of busi- ness is reflected in a sharp increase in stocks from £2,536,452 to £3,790,638, flanked by the emergence of a bank overdraft of £744,677. This item would point to an early raising of fresh capital were it not for the fact disclosed by the chairman, Mr. T. Lilley, that since the end of the financial year a contract has been entered into for the sale of the company's leasehold interest in Berger House, the company's new admini- stration and office building in Berkeley Square. Under this contract the company takes a sub-lease of the building, which ensures security of tenure. The cash which will become available as a result of this tran- saction is substantially in excess of the cost of the building. In assessing the value of paint shares one must now keep in mind the probability that keener competition will reduce profit margins. All the same, Lewis Berger 4s. Ordinaries look worth retaining at us., at which they are giving a return of 61-per cent. on a well-covered dividend.
An Engineering Share It says a good deal for the management of Ruston and Hornsby, the Lincoln engin- eers, that difficulties on the raw materials side have not led to any diminution in earnings. On the contrary, this company reports a further increase in profits for the year to March 31st from £2,203,415 to a new peak of £2,662,096. The depredations of the tax-gatherer are reflected in an increase of nearly £260,000 to £1,299,585 in the charge for United Kingdom taxation, and the company has also increased the. amount provided for depreciation by over £48,000 to £328,508. It has also set aside £120,000, as k year ago, for increased cost of plant replacement. These and other deduc- tions leave the group's net profit moderately higher at £898,301, against £746,975, and nobody will quarrel with the board's decision to pass on a modest part of the additional earnings to the Ordinary stock- holders. Against 9 per cent, for the preced- ing year Ordinary stockholders are to get 11 per cent., while at the same time the transfer to general reserve is increased by £36,000 to £457,957 and nearly £30,000 is added to the carry-forward. The higher Ordinary dividend is covered by a vela/ large margin of net earnings, and although one must be prepared for keener competition in overseas markets, the earnings outlook for this company, which must stand to gain considerably from the rearmament pro- gramme, is promising. At 32s. the £1 'Ordinary stock units are priced to give the attractive yield of 7 per cent.
Previous page
