FINANCE AND INVESTMENT
By CUSTOS
MARKETS are see-sawing gently according to whether the war news, which on balance still looks far from good, or the Weight of money seeking investment, exerts the.stronger pull. Investors are as stoical and phlegmatic as eve', and after a momentary shudder at the fall of Singapore, the price structure seems to have recovered its poise. Casualties there must be, and the falls -in the rubber and• tin groups have been severe. One can already detect, however, the influence of Money supplies, especially in the long-dated gilt edged stocks. For the present most of the available investment funds will probably seek safety rather than capital appreciation, but ripple action will come into play to the advantage of the more speculative groups provided the war out- look does not deteriorate still further.
HOME RAIES AND WAR DAMAGE In a less discouraging market atmosphere the dividends just announced by the home railway companies could scarcely have failed to bring some substantial rises in the prices of the junior stocks. Thanks to a modest increase in revenue from sources outside the -fixed annual rental agreement with the Government, the L.M.S. has been able to raise its ordinary payment from 11 to 2 per cent., the L.N.E.R. is paying 21 per cent., against a per cent., on its second preference, and Southern deferred stock- holders are to get x per cent., against ri per cent. Yet in spite of these increases prices in the market have scarcely moved. Yields on these stocks now range between to and 12+ per cent.
Part of the explanation, leaving on one side temporary techni- cal factors connected with the speculative " bull" position built up in rail stocks in recent weeks, is the treatment of war damage. Adopting a uniform policy, all the companies decided not to make any specific provision under this head in their 1941 ac- counts, although the incidence of war damage was kept in mind. It appears that negotiations are still in progress with the Treasury on the scheme covering public utilities under which the railways will probably be called on to foot 50 per cent, of their war damage bill. It is also made quite plain, however, that the railway boards have already made up their minds to regard war damage liability as essentially a post-war problem.
JUNIOR STOCKS TOO CHEAP
From a strict accounting standpoint this seems to me to be an indefensible attitude, but I can sympathise with the com- panies in reaching their decision. It is now clear that the L43,000,000 annual rental agreement imposed on the railways at the Treasury pistol-point last year is a very raw deal One has only to look at the activity on the railways on the goods side to see that net receipts must now be running far above the fixed rental. One need only consider the possibilities on the war damage side to realise that if the railways were to charge 50 per cent, of the bill against each year's revenue, dividend on many of the junior stocks might be very small indeed. All in all, I think the directors have acted wisely from a tactical standpoinf given, of course, this unsatisfactory rental as a basis. What with post-war uncertainties on top of the war damage problem, it is not surprising that rail stocks offer high yields. I am convinced, however, that they are substantially under-valued at today's prices. L.M.S. ordinary at 17+, and L.N.E.R. Second Preference at 191-, are cheap purchases. For those who want a very liberal margin of cover and good yield L.N.E.R. First
Preference are excellent value at 51. •
SHIP REPLACEMENT PLAN
Shareholders in shipping companies are indebted to the Lamport and Holt Line chairman, Sir Philip Haldin, for a frank exposition of the tonnage replacement problem. This leader d the industry leaves no room for doubt that the hire terms undef the existing requisitioning arrangements do not allow, the com- panies to build up anything like adequate reserves. The industrf is not being allowed to earn enough to provide for 'the ever' increasing cost of shipbuilding, now about double that of Pre- war, nor is it permitted to insure its vessels for their full replace- ment value under the Government insurance schemes. SIT Philip makes several suggestions to •remedy this obviously Im' satisfactory state of affairs. He asks for an increased depre tion allowance to build up special funds to be used for deprect tion only, and, as regards ships already lost, for a long-clate° Government loan at a nominal rate of interest to cover chc difference between the amount recovered by insurance and d" cost of actual replacement. .
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