FINANCE AND INVESTMENT
By CUSTOS
LESS than a year ago few people would have predicted that the gilt- edged market, whose brilliant performance was then a most powerful stimulus to the rise in security prices, would exchange that role for that of a major depressant.. It is certainly the steady fall in gilt- edged prices which is responsible for the marking down of insurance and bank shares and " blue-chip " industrials. That process affects other markets and has helped to induce a mood of wait-and-see.
In the middle of a three-weeks AccOunt, at the height of the holi- day season, it would be foolish to look for any quick improvement, especially against the present background of financial uncertainties. I am still impressed, however, by the general unwillingness to sell and I shall not be surprised if there is some recovery in the autumn.
CUNARD-O.S.N. CONTROVERSY
Some of the financial consequences of Mr. Dalton are rather odd. His refusal to countenance the capitalisation of reserves is responsible for even respectable City issuing houses becoming associated with the offer of is. shares at larg' premiums. Now his objection to a large-scale marketing of the 3,800,000 Li Ordinary shares in Cunard White Star held by the O.S.N. Realisation Company and the British and Northern Ireland Treasuries seem likely to result in this block of shares being acquired by the Cunard Steam Ship Company at what looks an unduly low price. Holders of O.S.N. "B" shares, who are mainly the general investing public, have been surprised and dismayed by the intimation that Cunard Steam Ship Company has bid only 4os. for the Li Ordinaries of Cunard White Star. If this offer is accepted, O.S.N. " B " shares will break up at 112s. each, or several shillings below the price recently touched on the Stock Exchange, and at least Li below the ultimate break-up figure which had been confidently expected in many City quarters.
The 1946 accounts of Cunard White Star provide strong evidence that in a free market the Li Ordinaries would be worth nearer 505. than 4os. Although the ' Queen Elizabeth ' re-entered the Atlantic service as recently as last October and the ' Queen Mary' will not sail to New York until the end of this month, profits rose last year from L1,69o,000 to £2,255,000. Following their traditionally con- servative policy, the board, which is in effect the board of Cunard Steam Ship, the controlling company, which already owns 6,800,000 of the io,000,00n Cunard White Star shares merely maintained the dividend at to per cent. This payment was covered by earnings of over 18 per cent., before deducting the substantial allocation to pension fund, and it seems clear that this year's profits will achieve another notable advance.
While one is bound to appreciate the commercial acumen of the Cunard Steam Ship directors in not raising their bid above 4os., and making every allowance for the long-term uncertainties in the North Atlantic trade, one feels that O.S.N. shareholders are getting a raw deal. Unfortunately, it appears that the large O.S.N. shareholders, who carry voting control, have already indicated their willingness to accept the offer. On the known facts, unfortunate as they are, holders of O.S.N. " B" shares would be well advised to switch into Cunard Steam Ship Ordinaries. In this way they will still retain their interest in Cunard White Star and will be throwing in tIvir lot with the party which seems to have got much the better of the deal.
A CATERING SHARE
It often happens in dull markets that the shares of companies which make new issues to their own shareholders suffer a set-back. A case in point is Nuthalls (Caterers) 2s. Ordinaries, which are now quoted around xis., against 13s. 94:1. a little time ago. This com- pany, which owns restaurants and cafes in nearly a score of places, chiefly in holiday resorts, is in the process of replenishing its working capital by an issue of new 2S. Ordinaries at ios. each. These are offered to existing shareholders in the proportion of one new for every four held and the rights can be purchased at is. premium in the market. This means that a buyer who pays is. must be prepared in two or three weeks' time to put up the additional ios.
For 1946 profits jumped from £39,882 to £59,510, and although taxation called for £33,600, against L17,7oo, an Ordinary dividend of 35 per cent. was paid out of available net earnings of just under 6o per cent. Profits for this year are being well maintained, and since there will be no further liability for E.P.T. there seems to be a good prospect of a higher Ordinary dividend. Even on a 35 per cent. basis, the 2s. shares at us. are yielding 64- per cent.
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