FINANCE AND INVESTMENT
By CUSTOS Crnt confidence in an early Conservative victory at the polls is now finding a clear and striking reflection in markets. Prices of industrial ordinary shares, which had been following a recovery curve within a few days of the Chancellor's dividend blow, are mov- ing up strongly and so are rubber and base metal shares. This is, of course, the logical reaction to expectation (1) that a Conserva- tive victory is probable ; and (2) that a change of government would be good for equity investment. I would certainly expect a Conservative Government to give a square deal to risk capital, even though I would also be prepared for rather dearer money and some movement away from inflationary towards disinflationary policies. With dealers short of stock and nobody a willing seller markets should continue their improvement for some time ahead.
British Celanese Results Examples accumulate day by day of the inherent injustice of the Gaitskell dividend freeze. There can be few cases, however, in which the threatened dividend legislation is shown to operate more harshly than that of British Celanese. Here is a company which in recent years has ploughed back very large sums out of profits into plant modernisation and extensions. Now, in admittedly unusually favourable trading con- ditions, it reaps a rich reward in a sharp increase in profits. Ordinary stockholders, whose return on their risk-bearing capital over the years has been modest indeed, take their share of the company's prosperity in the shape of a reduction in dividend. In tin two standard years for dividend freeze pur- poses this company paid 8 per cent. and 10 per cent. The new ceiling rate is there- fore 9 per cent. and the Celanese board have decided to toe the line. They do so in spite of a jump in the group's net profits from £4,102,432 to £7,291,578. Taxation has called for £4,137,486, against £2,539,838, but this still leaves net profit doubled at f3,154,092, against £1,562,594. In present circumstances Ordinary stockholders will doubtless be so impressed by the profit figures that they will not quarrel with the board's failure to make a specific allocation to a dividend reserve. In the market the results have been appraised at their true value by a rise in the quotation for the 10s. Ordinary units from 33s. 3d. to 36s. On the 9 per cent. dividend the yield is thus brought down to a mere 2+ per cent., which clearly reflects City hopes of an early ending of the dividend freeze and a substantial in- crease in this company's distribution. I would not advise stockholders to sell.
Odeon Preferences I see from the full accounts of Mr. J. Arthur Rank's Odeon group of companies that a step has been taken to strengthen the position of the Preference shares of Odeon Properties and Odeon Associated, two impor- tant subsidiaries. Whereas the payment of substantial dividends by these two com- panies to the parent tended to weaken the position of Preference shareholders; under a new arrangement, by which most of the payment to the parent concern takes the form of a management fee, both subsi- diaries are enabled to retain a larger propor- tion of their profits. In the case of Odeon Associated the carry-forward is being raised from £79,069 to £122,436. Odeon Proper- ties carries forward £181,370, against £49,126. The Preference dividends in each instance are well covered by current earn- ings and in my view the shares deserve a rather better status than they have so far been accorded in the market. Odeon Asso- ciated 43 per cent. £1 Preferences are quoted at 1 ls. 3d. to yield 8 per cent. and the 4+ per cent. £1 Preference shares of Odeon Properties stand at 13s. returning 7 per cent. Both seem to me worth a purchase.
Clifford Motor Profits Among the companies now enjoying great prosperity but conforming to dividend limitation by merely maintaining its divi- dend is Clifford Motor Components, the engineers, of Coventry and Birmingham. Whereas the dividend, which has been main- tained at 30 per cent. for ten years, is again held down to this rate, earnings on the basis of the latest figures amount to about 150 per cent. Group profits for the year to March 31 have soared from £222,500 to £444,900, and the net balance, after tax, is up from £79,400 to £229,300. The explana- tion of this surprisingly large increase in earnings seems to be that some of the subsi- diary businesses are now contributing to'the parent company's profits, there are the benefits accruing from past modernisation and expansion, as well as the advantages of a substantial growth of export business. Over the previous five years over £250,000 was spent on new plant and machinery, and as recently as May a new issue of capital was made for the same purpose and for factory extensions. The 2s. shares are now a firm market around 10s. 6d., but they still yield nearly 6 per cent. Bearing in mind the strong cover behind the dividend and the promising earnings outlook these shares look a good engineering investment.
Powell Duffryn Expansion The advice I gave on September 7th that Ordinary stockholders in Powell Duffryn, the South Wales industrial concern, should not pitch their hopes of a capital repayment very high, is fully justified by the chairman's statement which now accompanies the full accounts. Sir Herbert Merrett explains that now that the group has entered into new commitments of a long-term nature on a large scale the board have reached the con- clusion that the issued capital can be fully employed. It thus becomes unnecessary to disturb the present capital structure by any repayment to the stockholders. This may prove slightly disappointing to some inves- tors but in my opinion is =capable of an optimistic interpretation. Powell Duffryn, shorn of its colliery assets, has not allowed the grass to grow under its feet and is in the process of becoming a very large con- cern- with widespread industrial interests. Already coal compensation stock, which has been received to a total of £10 million, has been sold and the proceeds have been re- invested partly in short-term securities and partly In financing new investments. More- over, at a -meeting on October 10 stock- holders' approval will be sought for the creation of 1,839,529 new Ordinary £1 shares. This seems a pretty plain hint that in due course further capital will be raised, although the chairman emphasises that there is no intention or the need at the present time to issue any part of this addi- tional authorised capital. Accompanying the Powell Duffryn accounts for the first time is the latest annual report of the Vacuum Oil Company, in which Powell Duffryn's 50 per cent, interest is easily the largest single new investment of the group. The Vacuum Oil accounts show a profit for 1950 of £898,330, against £849,362 for 1949. They also disclose total assets at the end of last year of over £10 million, a figure which must already have increased substantially. With its partner, the American Socony- Vacuum, Powell Duffryn is prepared to pro- vide another £1,750,000 between now and the end of 1952 to finance fresh develop- ments at Coryton. Further funds will be required for the construction of this refinery and its related projects, but most of the money will be found, at least temporarily, by drawings on the substantial loan arranged by Vacuum with the Finance Corporation for Industry. What emerges from these figures is the immense scope of the Powell Duffryn group, even though the rewards, so far as stockholders are concerned, must be judged on an essentially long-term nature. Meantime, the £1 Ordinary units, which have moved up during the past fortnight from 34s. to 35s. 9d., are offering the reason- ably attractive yield of 4+ per cent. on the 8 per cent. dividend. The full accounts con- firm my view that these Ordinary units are a promising long-term holding.
A Recovery Share It is unusual in these days for companies to announce substantial reductions in divi- dend. This has happened, however, in the case of Duple Motor Bodies, whose Ordinary payment for the year to March 31 has been cut from the 20 per cent. in force for each of the three preceding years to 12+ per cent. A material reduction in earn- ings has reflected a year of exceptional diffi- culties. The chairman explains that in many senses the year was one of transition, the company having had to face considerable changes in design of nearly all types of passenger vehicles. In consequence, short- time working below capacity had a severe effect on profits. On the Stock Exchange the company's 4s. Ordinary shares, which were quoted as high as 14s. in 1947 and at 10s. 9d. last year, have come down to 8s. The yield on the reduced dividend of 12+ per cent. is 63 per cent. This seems to me to form an attractive basis for a purchase of these shares, having regard to the fact that the company has alert and progressive management, and given reasonably stable orating conditions should find no diffi- culty in achieving a good recovery in earn- ings. Even- if the dividend freeze should become law this company would be able to restore the 20 per cent. dividend rate, since the recent cut was announced after Mr. Gaitskell's speech. The shares seem to me to have good recovery chances.
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