FINANCE AND INVESTMENT
By CUSTOS Some hesitancy has been seen in the stock markets this week. The approach of the Budget and the Easter holiday; the weekly revenue figures showing an overall deficit of £411 millions to date; Lord Bruce's remarks about unwarranted optimism "even in the highest quarters" about the recent improve- ment in the gold and dollar reserves; the £20 millions North of Scotland Electric issue, and the possibility of further big issues by public utilities; the £32 millions relaxation in import restrictions; and the news that the U.S. Defence Department has. been directed to study plans to cut military spending by $4,300 millions in 1954—all these combined to induce a slightly more cautious attitude. But no real weakness has been evident at the time of writing, and there have been some good features, notably among gold shares. Dividend announce- ments, on the whole, are still stimulating.
"Bats" Share Bonus Ever since the Imperial Tobacco Co. distributed a 60 per cent. capital bonus last August the market has been hoping that its example would be followed by British American Tobacco. The hope is now fulfilled, for C.I.C. consent has been obtained to a bonus issue of one new 10s. Ordinary share for every £1 of B.A.T. Ordinary stock. Still better from the stockholders' angle is a rise of 11 per cent. tax-free to 161 per cent. tax-free in the.total dividend for the year to September 30th, 1952. Confolidated net profits—after deducting tax, a surplus on pre- 4valuation tobacco-leaf stocks and outside Shareholders' interests—are £1,380,442 lower at £18,606,523; but the dividend appears to be covered more than 41 times. The £1 Ordinary units rose to 110s. on the results. At this price the yield is 5.6 per cent, gross, which is satisfactory in the light of the excellent dividend cover, despite the fact that part of the profit earned overseas can- not be remitted to this country or has to be ploughed back to counter local inflationary pressure. Permission is being sought to quote the Ordinary stock in 10s. units when the capital bonus becomes effective; and on the basis of the present price, cum the dividend and bonus, the 10s. units would be about 36s. 6d. In their 10s. form the units are likely to become more popular with smaller investors.
A Coronation Bonus When the Cow & Gate issue of £500,000 6 per cent. Unsecured Loan Stock was made in November the directors foreshadowed, " in the absence of unforeseen circumstances," an Ordinary dividend of 10 per cent, for the year to September 30th, 1952, compared with 8# per cent. for the previous year. The performance is even better than the promise. Not only is the 10 per cent. dividend forth- coming but it is accompanied by a Corona- tion bonus of 5 per cent. Group, profits are up from £657,895 to £749,434, but after taxation and various adjustments, the group net profit (excluding outside interests) is reduced from £320,183 to £284,959. The -1.s. Ordinary units are now about ls. 3W., which includes nearly Id. for the net dividend and bonus. if the dividend is deducted from the price, the yield on the 10 per cent. dividend alone is just over 8 per cent. After provision for the 15 per cent. payment, however, the earned surplus for the year is somewhat meagre, and a high return seems appropriate.
Decca and E.P.L.
The pernicious effect of the excess profit levy and its arbitrary incidence were stressed by Sir Cyril F. Entwistle, Chairman of The Decca Record Co., at the annual meeting on Monday. For the year to March 31st, 1952, E.P.L. covered only three months, but the charge absorbed £32,600, or an annual rate of £130,400, which would exceed the total net dividend paid to the Preference & Ordinary shareholders for 1951-2. Fortu- nately, the 150 per cent. dividend on the small. Ordinary capital was covered over four times by earnings and would still have been covered nearly three times even if the profits had borne a full year's E.P.L. charge. The levy, nevertheless, has heavily penalised Decca for its strenuous and success- ful efforts to establish new enterprises and expand exports, particularly to the dollar markets. How successful these efforts have been is evident from the fact that export sales in the current year—to March 31st, 1953—will be approximately £2,400,000 (including £670,000to the dollar area) compared with £255,000 (including £93,000 to the dollar area) in 1946-7. In spite of wage increases, no part of the rise in costs has been passed on to consumers; overall turnover has substantially increased; and the business of Decca Navigator and marine radar has continued to expand. It is not surprising, therefore, that the directors are looking forward confidently to the out- come of the current year's trading. Now quoted around 26s. 3d., Decca shares yield 51 per cent. In spite of ups and downs in the records, gramophone, television and 'radio sides of the business, the price does not seem too high in the light of the company's striking progress during the past three years.
A Good Debenture In the list of progressive industrial con- cerns I would give Eastwoods, the brick and cement manufacturers, a high place. This company is now raising new money through an issue of 5 per cent. Debenture stock as the most suitable means of repaying bank over- drafts incurred in recent years in carrying through the group's expansion plans. Subscription lists will open and close on Tuesday, March 31st, and in my view this presents an opportunity of acquiring a really first-class fixed-interest security on attractive terms. The issue comprises £850,000 of 5 per cent. Debenture stock with final repayment at 101 in 1975. The issue price is £971 per £100 of stock, with £10 payable on application, another £25 on allotment and the balance of £62 10s. on May 29th. The prospectus shows that on net assets the Debenture stock is covered more than 3i times. On the latest profit figure the annual interest is covered over nine times. With the company well entrenched in its trade and under alert and shrewd management, one is justified in according this Debenture a high investment status. Carpet Trade Revival Last autumn I called attention to the indications of a strong recovery in the fortunes of the carpet industry. Those hopeful signs are now shown to have been the beginning of a genuine improvement, which is clearly reflected in the profit and loss accounts of some of the leading manu- facturing companies. John Crossley and Sons, the Halifax firm, whose £1 Ordinary shares I singled out as attractive around 33s. 6d., increased their profits and main- tained their dividend for the year to November 30th, 1952, while the balance sheet shows a marked improvement. Stocks have been reduced by about £700,000 to £1,235,739, bank overdrafts of £281,342 have been paid off, and cash is up from £47,376 to £136,639. The Chairman recalls the doubts he expressed in February of last year on the ability of the home trade to absorb anything approaching a pre-war volume of carpets at current price levels. He now takes the view, in the light of the experience of the last six months, that these doubts were unfounded. John Crossley £1 Ordinaries are up to 47s. 9d., yielding about 8# per cent. on the 20 per cent. dividend—I think we must ignore the 5 per cent. special bonus—and thus still give a generous return. I do not advise selling. Carpet Trades, another leading unit in the industry, so far from experiencing any set- back in earnings, reports an increased group profit of £159,796, against £107,357, and raises its dividend from 15 per cent. to 25 per cent. This company's 10s. Ordinaries are now up to 31s. 3d., at which they yield 8 per cent. In this instance, the assets position and past earnings record are not so. strong, and I regard the shares as fully priced, at least for the present.
Imperial Continental Gas Imperial Continental Gas Association stock has recently improved to 103 on dividend hopes. The hope is not for an increase in dividend, which was 10 per cent. for the year to March, 1952, but for some- thing more than 71 per cent. The explana- tion is that a 20 per cent. capital repayment, followed by a capital bonus which restored the capital, was made last July; and the Chairman estimated that, owing to the consequent reduction in the E.P.L. profit standard, the additional tax charge for the year ending March 31st, 1953, would be not less than £100,000, which is equivalent to a 21 per cent. dividend. He thought it would be almost impossible to cover the higher tax charge from increased profits because they, too, would be subject to E.P.L. Since last year's 10 per cent. dividend was only just covered by disclosed earnings, the prospect of a dividend in excess of 71 per cent. would thus seem to be faint. The optimists, however, point out that the Association is dispensed from the obligation to present group accounts in respect of its Belgian subsidiaries, and that last year the Cokeries du Brabant earned enough profit to cover the accumulated losses of slightly over £400,000 incurred in previous years. A dividend from this company thus seems to be a possibility, and there may perhaps be a better return from other interests. Whether or not these hopes are warranted is hard to say; but my impression is that 1.C. Gas stock is worth 103 even if the dividend is only 71 per cent. On this basis the yield would be over 71 per cent.
Previous page
