27 FEBRUARY 1948, Page 28



ONCE stock markets have begun to fall it is hard to predict when a recovery will set in„ So much depends not merely on the kind of news in store but on how •investors will react. At the moment the only good news which seems a near-term probability is the acceptance in America of the Marshall Plan and the beginning of aid some time in the spring or summer. I suppose, too, that it is possible—I would not rate it higher than that—that this country may formulate a wages and profits " policy" which would put an effective brake on inflation and not hit dividends too hard. But meantime there is the uncertainty implied in the coming budget and the known difficulties now confronting many branches of trade both at home and in over- seas markets. It is- tempting, after the recent fall, to suggest that British industrials are getting to bargain levels, but to all but the boldeit my advice is to wait.


From the full accounts of the Imperial Tobacco Company, which present a really illuminating picture of the group's affairs, stock- holders will get at once an impression of the strength of the financial position which the company has built up and also of the uncertainty which vows surrounds the immediate trading prospect. In con- sidering the 33 per cent. dividend on the Ordinary'stock one needs to remember that the capital employed in the business is more than three times the issued Ordinary capital. As the directors point out, reserves, which now amount to L34,000,000, are used in the business and in addition there is short-term capital to the tune of £46,000p00. Even the most severe critics of capitalist enterprise will have to concede the directors' point that the true rate of return on the capital employed is " very much smaller " than is represented by the rate of Ordinary dividend. A year ago the Imperial Tobacco board made it plain that they would like to convert part of the temporary capital into permanent capital by the issue of a sub- stantial amount in new Ordinary shares at par. To carry through such a refinancing operation at the present time would be much too expensive, however, in view of the to per cent. duty on bonus issues.

It is an open secret that tobacco stocks are now at a level which represents the barest minimum and are only sufficient to cover the present rate of consumption if it can be assumed that stocks will shortly be replenisled under the Marshall Plan. My own view is that tobacco will be forthcoming on a substantial scale when the Marshall Plan begins to operate, so that it should be practicable to maintain deliveries to the consumer here at or around the present level, at which supplies fall somewhat short of demand. Even on this assumption profits may suffer a further moderate reduction during the current year and it might be wise to budget for a small cut in the current rate of Ordinary dividend. Imperial Tobacco £r Ordinary units now stand just under £51 to yield over 6 per cent. I would rather buy than sell at this price.

WELWYN GARDEN CITY Two years ago I outlined the attractions of the kr shares of Welwyn Garden City when the price was around 25s. Since that date the tompany has increased its revenue and raised its dividend from 5 per cent. to 6 per cent. and the shares have been as high as 27s. 6d. Latterly it has become clear that important changes in the affairs of the company are likely in the fairly near future, in that the Ministry of Town and Country Planning has announced its decision to appoint a Development Corporation for Welwyn Garden City. If, as seems certain, the Government carries through its plan, the responsibility for completing the development and building of the town will be taken out of the company's hands and the whole of the land in the designated area now owned by the company will be acquired by the Ministry. Unfortunately no basis has been laid down on which compensation will be assessed, but at the recent meeting in London shareholders were told that against the issued capital of only L536,300 the total amount of funds which had been put into the company was over LI,000,000. Any attempt at calculating the likely break-up value of the shares is necessarily tentative, but there are grounds for believing that if compensation is paid on a reasonable basis there should be something nearer £2 than the present price of 28s. available for the shareholders. A point of special interest is that a substantial part of the company's revenue in recent years has come from the Welwyn Stores, a sub- sidiary, which has a large annual turnover. It seems a safe assump- tion that this revenue-earning asset will remain with the company.