22 SEPTEMBER 1950, Page 32

FINANCE AND INVESTMENT

By CUSTOS As I suspected, only a breath of better news from Korea was required to touch off quite a sharp recovery movement in the stock markets which has already gathered momentum. At this early stage the improvement in prices is so broad as to suggest that some of the buying is based more on enthusiasm than logic. It is hard, for example, to see why a renewal of inflationary pressures should be good for gold shares as well as for commodity shares, or as favourable to -gilt edged as to equities. Discrimination will doubt- less become more apparent as the rise goes on. Meantime, 1 must record my view that barring some fresh shock on the international political front, weight of money will sustain the recovery.

Odeon Group Improvement The latest results of Mr. J. Arthur Rank's Odeon group of film and cinema companies have, on the whole, been well received in the City. While the figures have again had to take account of heavy losses on the production side, amounting to £1,705,000 in the case of Odeon and General Cinema Finance, and £575,000 in the case of Gaumont-British, including the Gainsborough subsi- diary, these losses have inevitably been compared with the previous year's figure of over £4,600,000. They underline, of course, the misfortunes which have overtaken shareholders in Odeon Theatres as a direct consequence of Mr. Rank's decision that this company should enter the tricky production side of the business. He now assures shareholders that, although deficits on production on a much reduced scale are still probable, the process of contracting the film production programme from the over-ambitious scale of two years ago is bearing fruit. In the balance sheet the first effects of the retrenchment policy, which has been forced on the group, are seen in a reduction from £16,286,581 to £12,950,036 in bank loans. This welcome improvement has been effected partly by the sale of non-essential properties, such as Devonshire House and the Shepherd's Bush studios, and partly by the liquidation of film stocks. A feature of the consolidated balance sheet is a reduction in the group's film stocks from £10,700,000 to just over £7 million.

On the Stock Exchange the first reactions to the latest results have been a rise in several of the Preference issues, which has reduced yields from the 10 to 12 per cent. obtainable two or three months ago to an average of between 8 and 10 per cent. This seems to me a fair recognition of the improvement which has taken place and of the prospect that the financial rehabilitation of the group will continue. The stage has been reached when investors might consider taking an interest in some of the securities in this group of the companies engaged purely on the exhibiting side. Among these is the General Theatre Corporation, which owns or controls 44 cinemas, mostly in the Provinces. For the year to June 24, 1950, this company's trading profits rose from £138,270 to 1162,223, and the dividend on the 6s. 8d. Participating Preferred Ordinary shares was raised from 12 per cent. to 15 per cent. In good years the dividend has been as high as -231 per cent., and it seems to me to be quite probable that the distribution will be raised for the current year ending next June. Cinema attendances have latterly been improving and the company stands to gain from the economy measures on the administrative side put into force two years ago.

Argentine Exchange Developments Dealings in Argentine industrial shares in London have been enlivened by an announcement from Buenos Aires of far-reaching modifications in Argentina's complicated system of exchange rates. New regulations, which came as a surprise to London banking quarters, are aimed at simplifying the exchange rates structure and, to quote Argentina's Finance Minister, at increasing foreign trade, facilitating the movement of capital and the transfer of earnings on capital owned by foreign enterprises. The new rates for basic exports and basic imports both introduce a substantial measure of depreciation in the Argentine peso, but there is also to be a " free peso " which will be allowed to find its own level. While it is impossible at this stage to gauge the precise effects of the new arrangements, it is being assumed that British-owned com- panies in Argentina, such as Harrods (Buenos Aires), Leach's Argentine Estates and Forestal Land, will all draw some benefit through the easing of the remittance problem. According to the new regulations-transfers will now be permitted up to 5 per cent. of the total investment in the case. of capital already incorporated or to be incorporated, while it is the intention, if the free market functions satisfactorily;to allow companies to remit profits already accrued. On the Stock Exchange there was at first a fairly sharp adjustment in the prices of many of the shares principally con- cerned, but there has been a reaction which leaves quotations little changed. In .my view there is some scope for recovery in shares such as Harrods (Buenos Aires) f1, 8 per cent. Cumulative Preference shares, which after moving up from 12s. to 14s. 3d. are now back to 13s. Profits have covered this Preference dividend over a long period of years by a satisfactory margin, but in May the board were unable to pay the half-yearly dividend simply because no sterling remittances were obtainable. If, as now seems likely, payments on these Preference shares can be resumed, the price in the market ,should stand above the current level.

Wiluna Break-up Estimate I referred last week to the merits of the £1 shares of the Wiluna Gold Corporation in the light of'the break-up possibilities, now that the board has decided to cease mining and to put the company into voluntary liquidation: Readers may be interested to know the basis on which I estimated the break-up value of the shares at something between 12s. and 13s. The main assets are held by Wiluna Gold Mines, which is an operating company registered in Australia. At March 31, 1950, this company held £434,563 in cash and Commonwealth loans with a market value of £547,412. In the recently issued report the chairman has intimated that this immensely strong liquid position has been maintained, with cash and liquid assets at June 30 standing at £984,056. On top of that the company has debtors in excess of creditors amounting to approximately £100,000, stores carried at a book value of £92,117, shares in Porphyry gold mine carried at a figure of £24,826, other shares and advances amounting to. £22,386, and machinery, plant and buildings which appear at a heavily written-down figure of £170,523. To- err on the side of caution 1 would ignore the com- pany's holdings in Porphyry and its other investments and advances. If these holdings were worth the book value they would amount to something less than £50,000. The interesting item is the written- down figure of f170,523 for machinery, plant and buildings. Here, I think it is safe to assume that at least this amount will be realised by the liquidator for the benefit of the shareholders. It is worth noting that in 1949 the company sold machinery and plant with a cost value of £24,923 but.made a profit on book value of £13,499. For the year to March 31, 1950, plant sales with a book value of £88,422 gave a profit of no less than £66,363. It seems to me that, in the light of these figures, it may well be that the balance sheet value of £170,523 attached to the remaining machinery, plant and buildings represents a substantial under-valuation of these assets. If one merely takes ,the book value, however, and adds it to the other liquid assets one reaches a total of approximately £1,350,000.

Exchange Rate Question That is all in Australian currency, which converted at the current exchange rate of 16s. Australian to the pound, gives an English equivalent of £1,080,000. If one adds in the surplus liquid assets of the parent company in which investors are directly interested, which amount to about £20,000, one reaches a figure in English currency of £1,100,000. That must be set against the issued share capital of Wiluna Gold Corporation of £1,559,012. A simple divi- sion sum indicates a break-up value for the £1 shares of 13s. 9d. How long it will take to complete the liquidation is anybody's guess, but with such a large proportion of the assets held in cash and Australian Government loans one would imagine that once the liquidation process has been put in hand shareholders should get their money within a period of, say, six months. One of the attractions of the shares, which are now quoted in the market around lls., is the possibility—I will, not put it higher than that— that before the money from the Australian subsidiary is transferred to this country the Australian exchange rate may be adjusted to something nearer par than the present level of 16s. If such change did take place, the break-up value might prove to be somewhere nearer 16s. than my estimate of 13s. 9d.