FINANCE AND INVESTMENT
By CUSTOS Industrial Banking Equity United Dominions Trust has to labour under the disadvantage of not being allowed by the Capital Issues Committee to raise any more capital to finance its expanding business. In face of this the company is certainly managing very well. Since consolidated figures were first issued in 1948 the earnings have risen from £116,000 to £336,859, the amount shown in the accounts for the year to June 30th last. Dividend policy is influenced by the need to conserve funds, but this year the payment is being increased from 20 to 22f per cent., which absorbs less than half of the available profits.
The company is usually considered to be mainly concerned with the finance of hire- purchase transactions, particularly in con- nection with the motor and allied trades. That is how it started thirty years ago. Now, however, it would be more accurate to describe it as a commercial and industrial banking company. Even this does not give a complete picture of its activities, for it numbers among its subsidiaries Ryders Discount Company, an important member of the money market, and the Laystall Engineering Company, a well-known prec- sion engineering business. Incidentally, the profits of these two undertakings are not brought into the consolidated accounts, so they may be considered to provide a useful amount of extra' cover for the parent company's dividends. The group enjoys the energetic leadership of Mr. J. Gibson Jarvie. The £1 stock units, now standing at 74s. cum the final of 15 per cent., yield 6.2 per cent. They are a sound holding in a company with a usefully diversified spread of interests.
Power-Gas Scrip Bonus This week's announcement from the Power-Gas Corporation of a scrip bonus of one 10s. share for every £1 of Ordinary capital held serves to draw attention to the AT the moment stock markets are looking quite healthy. The success of the English Electric debenture, oversubscribed some twenty times, has .given a tonic not only to the fixed-interest section but to equities as well. In particular, much more interest is being taken in electrical equipment shares, including English Electric themselves, Asso- ciated Electrical Industries, and General Electric. It may however be too early to say that the movement is anything more than a technical rally. Certainly it is true that a very little inquiry is enough to move prices quite sharply. This is because there are very feel sellers about. Most holders are quite content to hold on to what they have bought, particularly as prices are still well below levels touched only a few months ago.
The whole economic outlook remains profoundly obscure. Mr. Butler's statement on the need to increase exports has under- lined the fact that the outcome of his financial policy is still very much in the balance. Meanwhile there is no solid sign which way commercial and industrial activity in the United. States is going, to move, and on this all our prospects depend. The need for caution in making investment decisions is no less pressing that it ever was. investment merits of this old-established concern. The company specialises in the design, production and construction of all types of gas, chemical and iron and steel works' plant and equipment. It was responsi- ble for the supply of blast furnaces and ore bridges to the Steel Company of Wales at Margam and for the construction of the Government of India fertiliser factory at Sindri, Bihar, among other interesting contracts.
The dividend record has hitherto been exceptionally conservative. Last year the payment was stepped up to 14 per cent. after having been pegged at 12* per cent. ever since the war, though in the last five years available earnings have come up from less than £100,000 to £240,000. Even last year's increased payment was covered five times.
So far the board has made only one dividend announcement a year, and the next is not due till December. Whether the scrip bonus will be followed by an increase in the total amount distributed cannot yet be said. At the present price of 62s. cum the bonus the yield of the 14 per cent. dividend is only 4f per cent., so it looks as though the market is expecting some increase. if the rate of dividend were maintained at 14 per cent. on the increased capital the yield would go up to 6.7 per cent. I think it is a chance worth taking. Even a smaller increase would justify the retention of the stock.
Edgar Allen Dividend Policy The latest results of ;Edgar. Allen and Company, one of the Sheffield steel-making concerns that escaped nationalisation, record a fall in trading profits and in earnings after tax, but the directors have not allowed that to deter them from raising the dividend on the £1 Ordinary shares from the equivalent of 10 per cent, to 15 per cent. The previous payment absorbed only one-seventh of the amount available, and it has for some time been confidently expected that the board would be liberalising its policy, but the distri- bution now proposed will still be covered more than three times, so the maintenance of the new rate for the future can be assumed with a fair measure of assurance, to say the least.
In fact, thanks to past conservatism, revenue reserves now amount to as much as the Ordinary capital, and in their statement with the accounts the directors say that they have been considering the extent to which these are required for the purposes for which they were originally set up, that is, develop- ment, replacement of assets, and so on. The implication is that a distribution of bonus shares might be made, with a consequent further increase in the rate of dividend. For the moment, though, no steps are to be taken along these lines.
As it is, at their present price of 42s. 9d., cum the dividend, the shares yield 7.3 pe,r cent. The company's products include high-speed tool steels, railway trackwork and numerous other specialised steels. The setback in profits is due to increases in costs and taxation. With the removal of Excess Profits Levy the tax problem at least will be simplified, and so long as there is no major setback in the engineering industry the shares should be well worth holding.
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