FINANCE AND INVESTMENT
By CUSTOS STOCK markets are still in good form, but it remains true that activity is still largely centred on speculative issues. The latest news from Persia, of course, has distinctly enlivened the Oil market, and in sympathy with Anglo-Iranians Burmahs have afforded some further justification, admittedly purely fortuitous, for the enthusiasm I have recently shown for them. Broadly speaking, though, take-over and break-up talk is still the main driving force behind most market move- ments. An outstanding example of this was a big rise the other day in the shares of Johnson Brothers (Dyers) on the news that the directors are going to carry out a property deal involving the group's 1,400 shops. This has stimulated further interest in many other shares representing fixed assets in the form of freehold properties, where it is felt that there is a big gap between market quotation and underlying values.
Debenhams to be Written •Up One of the main companies with such associations is Debenhams, which, with well over a hundred separate establishments under its control, must have a large area of undervaluation in its consolidated balance- sheet. This week the directors have issued an announcement to the effect that they are proposing to write up the nominal value of the Ordinary shares from 4s. to 10s.
A statement of some sort had been expected for days or even weeks, but the ,market was going for something rather more ambitious. The most favoured suggestion was that the company would be converting its freeholds into leaseholds, with the possi- bility of a tax-free capital repayment to the shareholders, but this idea now looks rather remote. All the same, there is evidence that some important financial interests have acquired big holdings in the expectation of substantial capital appreciation, and it will not be altogether surprising if they regard the latest development as out of keeping with their idea of what should be done.
In any case, a change in the nominal value of the shares in itself means nothing. What matters is the future rate of dividend, and on this the directors' circular leaves us in the dark. Last March the interim was raised by a half from 8} to 121 per cent., and a cor- responding adjustment to last year's final would give a total of 461 per cent. One con- jecture is that this might be rounded off to 50 per cent. Earnings last year were 77 per cent., but this year they ought to be better. At around 29s. 6d. the notional yield is only 6.7 per cent., and normally I should not regard this as over-generous. In view of the possibility of further developments, how- ever, holders might be wise to wait and see a little longer.
Thorn Electrical Thorn Electrical Industries is a progres- sive business, but like others of this descrip- tion the financing of its ever-expanding activities compels the directors to pursue a somewhat conservative dividend policy. Thus it was not surprising that this week's declaration of 12* per cent. on the Ordinary 5s. shares was merely a repetition of last year's rate. On the other hand, the pre- liminary statement of profits for the year to March 31st, 1953, shows a marked improve- ment on the previous period. The group trading balance amounts to £771,292, against £681,169, and even after a sharply increased provision for tax there is an appreciable increase in the cover for the dividend, which last year was five-fold.
What the consolidated balance-sheet will show in the way of liquid resources I cannot predict. Last time there was a bank over- draft of £921,000 against cash of £142,000. Since then the company has raised £500,000 in unsecured loan stock, and this, together with sums coming in during the year, should have alleviated the position. At about 11s. cum the dividend the shares yield some 6 per cent. This is a reasonable return for an investment with growth possibilities.
Low-priced Woollen Equity A company that deserves closer attention than investors have so far seemed willing to give it is Hirsch Son and Rhodes, top makers and woollen merchants, of Bradford. Since it was made public in July, 1948, the com- pany has shown an impressive record of rising trading profits, and has paid steady dividends, yet at the moment the 4s. shares stand no higher than 6s. to yield 11 per cent. on the latest dividend of 161- per cent. This payment was covered by earnings nearly four times as large. There are no prior charges outstanding. The latest balance-sheet shows net liquid assets alone equal to over 8s. a share, though the fact must be faced that the assets consist chiefly of stock and debtors, and that this year an overdraft has developed. Against this it is worth pointing out that the latest accounts show a figure for Excess Profits Levy equivalent to a dividend of over 10 per cent., so that when the Levy expires at the end of this year the net balance should be helped.
The shares are attractive as a means of raising the yield of a mixed portfolio.
Ten per Cent. Freehold The renewed activity in shares with free- hold property connections has set investment analysts to work looking for holdings of this sort that do not look over-valued. The main trouble with recommendations arising out of research of this sort is that shares are not always easy to come by, and a would-be buyer may have to place a standing order and wait some time before he sees any result. One share whose marketability is not too restricted is the 2s. 6d. Ordinary of Olympia. The company's freehold land and buildings are entered in the balance-sheet at £2,479,246, against £2,254,432 when the company was floated in 1930. The difference represents subsequent additions. It may be safely assumed that the book figure is conservative in the extreme, but even on this basis there is enough to cover the outstanding prlhcipal of the it per cent. Mortgage Debenture Stock and the 5 per cent. Preference shares and still leave par for the Ordinary. It is there- fore fair to suggest that the Ordinary should eventually be worth more than their present value of Is. 6d.
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