26 APRIL 1946, Page 22

FINANCE AND INVESTMENT

By CUSTOS

As every experienced observer of the stock markets knows, the time for caution is when the sky is at its bluest. Too many hostages have been given to fortune, something happens such as a political crisis or a financial scandal which impairs confidence, liquidity preference comes into play and prices fall. This is such a familiar sequence that one feels compelled in the present buoyant condition of the market to scan the investment horizon very closely for the cloud no bigger than a man's hand. I find it difficult, however, to be other than optimistic when due weight is given to the abundance of funds seeking investment, the continuing influence of low interest rates, the gradually lightening burden of taxation and the virtual certainty that re-stocking and re-equipment demands will ensure a high level of gross earnings over a wide field of activity for many years to come. From the purely technical market standpoint there is no speculative position of any size, except, possibly, in some of the Orange Free State gold-mining shares, which implies that markets are not vulnerable to anything but the most adverse- news. My conclusion is that on selective lines security prices will move into still higher ground during the coming months.

IRON AND STEEL SHARE POSITION

In dismal contrast with the general strength of markets the iron and steel share group has been depressed by the announcement of the Government's nationalisation decision. The announcement itself was in vague ,terms, throwing no light either on the scope of the Government's intentions or on the likely basis on which compensation will be fixed. The terms of Mr. Wilmot's statement were, indeed, so vaguely phrased as to create the maximum amount of uncertainty in the minds of the leaders of the iron and steel industry and of investors. One question which immediately suggests itself is whether nationalisation will be confined to the larger plants concerned only with steel at the ingot stage, or whether it is the Government's intention to go the whole hog and cover the finishing end of the industry.

When one comes to examine the finishing end of the business, which covers such a wide range of engineering activity, one feels compelled to assume that the Government will stop short of attempt- ing to impose public ownership in such a complex industrial field. All the same, iron and steel shares have now joined the growing - list of industrial investments which must fail to attract speculative support, at least until much more is known about the Government's plans. The marking down of quotations which has taken place during the past week has been less the result of actual selling than of the protective tactics of jobbers who now take the view, quite understandably, that support on the buying side will be limited. At the current level of prices, at which practically all the leading shares such as United Steel, Lancashire Steel, Colvilles and Richard Thomas offer generous yields, I do not advise holders to sell. So far as the engineering firms are concerned, such as Wellman Smith Owen, Head, Wrightson and the like, I feel that the risk of nationalisation is very small.

A CHEAP INDUSTRIAL Investors who are prepared to ignore a bad pre-war history and to concentrate on future possibilities might consider the merits of the Li ordinary shares of the Lightfoot Refrigeration Company. In pre-war years this undertaking had a poor record, but it has recently

carried through a thoroughgoing reorganisation which has helped to re-establish its earning power. During the past few years trading profits have risen steadily from £25,000 to over D00,000, and although taxation has absorbed a large slice of these earnings, net profit, after tax, for 1944 was equivalent to over 13 per cent. on the ordinary capital. A dividend of 5 per cent., free of tax, was paid out of capital reserve, a substantial profit having resulted from the disposal of the company's ice factories and cold store business in Calcutta. I think it is safe to assume that the 1945 results, which are due to be published in July, will be distinctly satisfactory, the company being busily engaged both on home and export orders. ,A dividend of 7i per cent. should be well within the company s distributable profits and the outlook appears promising for some time ahead. As 'a lock-up for capital appreciation, these shares,

quoted around 26s., should turn out well: ,