FINANCE AND INVESTMENT
By CUSTOS
UNDER the lead of gilt-edged stocks markets are trying to find a new basis. I doubt, however, whether they should be expected to achieve much success at this early stage. Encouraged by the continued strength of the pound, which admittedly has surprised most City observers, the gilt-edged market has recovered a little poise. Only small buying orders, mainly from the insurance companies, have brought a modest but welcome improvement in prices, but I find it hard to believe that this movement can progress very far while so many uncertainties remain unresolved. Will sterling hold its rise once the large " bear " position has been covered ? Will Mr. Butler be able to avoid another Bank Rate rise if the gold reserves are threatened in the autumn ? These are questions which cannot yet be answered with any certainty. Until they can buying must remain cautious. What of industrial equities ? It seems to me that here the uncertainties which obscure the outlook are even more numerous. Profit- making in many branches of industry has already become much more difficult than in 1951 and problems in export markets are increasing. After their recent fall many first-class industrials, now yielding 6 per cent. or more, are beginning to look cheap but I doubt whether there is much to be lost by waiting.
British Oxygen Continuous and heavy advances in operat- ing costs are cited in the preliminary state- ment of the British Oxygen Company as an important factor in the latest trading results. These show an increase in the consolidated profit of the group from £4,225,584 to £4,595,414, which sets up a new record. The directors emphasise that this improve- ment has arisen only from a greater volume of sales and they rightly point out that it has been absorbed by higher provisions for depreciation and for home and overseas taxes. The depreciation charge is up by £140,000 to £1,352,945, and U.K. and overseas taxation has required• £216,000 more at £1,965,134. The net result is that profits of the group, after tax, were only £13,200 up at £1,277,335. There will be no surprise against this background that the cautious board has decided to leave the Ordinary dividend unchanged at 20 per cent., the rate which has been in force since 1946. They are putting £250,000, against £150,000, to general reserve and raising the carry- forward by over £100,000 to £446,722. As I have often pointed out, British Oxygen is a leader in its field of industry and has a progressive earnings record. Quoted around 71s, the fl Ordinary units are about 30s. below the peak of just over £5 reached last year. Even so, the yield is only 51 per cent., or about per cent, less than can now be obtained on several other top-class industrial equities. In present conditions they look fully valued.
Sun Life Position Shareholders in the Sun Life Assurance Society, who were recently disagreeably surprised by the cut in the half-year's dividend from 2s. to is. 9d. tax free, are given a full explanation of the board's Policy in the statement of Mr. W. M. Pryor, the chairman, which accompanies the full report. It is clear from what he says that an important factor in the board's decision has been the depreciation of gilt- edged investments. To cover the fall in capital values of the Society's large holdings in gilt-edged a transfer of £3,250,000 has been made from the assurance funds to investment reserve. Mr. Pryor reminds shareholders that the present distribution of profits is for a period of five years (1947- 1951), whereas the previous distribution covered the ten years from 1937 to 1946. There can be no surprise, therefore, that the proprietors' share of the divisible sur- plus, after allowing for the bonuses on participating policies, is down from £443,477 to £328,232. There is also the incidence of Profits Tax on the Proprietors' Fund. While shareholders are naturally disappointed at the cut in dividend, which appears to put the annual rate on a basis of 3s. 6d. tax free for the five years until the next quinquennial valuation, they should draw some satisfac- tion from Mr. Pryor's review of the Society's investment position. Against the fall in capital values has to be set the advantage of the higher yields now obtainable. It is also disclosed in the chairman's statement that the opportunity was taken last year to exchange nearly £5 million of British Govern- ment stocks into suitable alternative secur- ities, chiefly Debentures. The Society also increased its holdings of Ordinary shares by about /1,250,000 in 1951. In doing so it has not departed far from its traditional policy of holding only a small proportion of its total portfolio in equity shares. Following the dividend cut Sun Life £1 shares have fallen by a few shillings to £7 10s. They seem to me to be reasonably valued at this level.
Ford Motor Dividend City hopes that the Ford Motor Company, whose dividend policy has been con- spicuously cautious, might see fit to make a modest increase in the payment to Ordinary shareholders for 1951 have been fulfilled. On the £9 million of Ordinary capital, of which 59 per cent, is owned by the Ford Motor Company (U.S.A.), the dividend is increased from 121 per cent. to 15 per cent. The higher rate still represents a conserva- tive distribution of the available earnings. Group profits, struck after all charges, including taxation, rose from £3,773,657 to £3,984,512. The 15 per cent. dividend appears to be covered about 54 times over. Nevertheless, it is apparent from the com- pany's preliminary, statement that trading profits fell somewhat short last year of the 1950 peak. Last year's trading experience was influenced by the introduction of new models and substantial changes in factory layout, as well as by shortages of steel and other raw materials. That was why at the annual meeting in May the chairman warned shareholders that 1951 was unlikely to witness a repetition of the 1950 profits. If one allows for special debits and special credits, it appears that Ford's trading results last year did, in fact, fall short of the 1950 level by about £400,000—a satisfactory achievement in view of the known difficul- ties. The modest increase in the dividend is consistent with the transfer of £2,750,000, against £2 million, to reserve for replacement of fixea assets, which now stands at the impressive figure of £11,805,822. Ford Motor £1 Ordinary units are now quoted around 43i. 3d., at which the yield is just over 7 per cent. This may not seem an unduly generous return on the equity of a motor company at a time when problems In overseas markets are becoming more acute, but as a long-term holding the shares should turn out well.
Gallaher Results Like the Imperial Tobacco Company, Gallaher, the tobacco manufacturers with headquarters in Belfast, have also achieved considerable success in ctuntering the effects on profits of rising costs. While Gallaher's net profit for 1951 has fallen from £668,903 to £592,816, it is apparent that the group's earnings, before taxation, were actually higher than in 1950. The tax charged has increased from £823,092 to £1,061,822. Following the line of Imperial Tobacco this group also raised the prices of its cigarettes from the end of August. The advantage of this increase was thus felt for four months of the past year. Nobody expected that the dividend rate would be increased from the 321 per cent, rate which has been in force since 1946. Once again this rate of distribution is shown to be ade- quately covered by net earnings. The factors governing the outlook are, on the one hand, the benefit for a full year of the increase in cigarette prices and, on the other, continuing rises in costs. On the whole, the trading outlook appears reasonably encouraging. Gallaher fl Ordinary shares, which at one time in 1951 were quoted just under £6, are now down to 87s. 6d. They are now yielding just over 74 per cent. They should not be sold.
Swan, Hunter Decision Although the recent dividends of Swan, Hunter and Wigham Richardson, the Tyne- side shipbuilders and engineers, have been covered by an unusually large margin, the board's decision to raise the distribution for 1951 from 16 per cent. to 18 per cent. has come as a surprise to the market. It is certainly justified by the latest results. Group profits have risen from £1,929,171 to £2,792,125, a striking indication of the current prosperity of the shipbuilding industry. Although taxation has cut deeply into the additional earnings, the provision under this head being £1,598,923 against £1,064,168, group profit was still up from £865,003 to £1,193,202. The higher dividend is consistent with the transfer of £100,000, against nil, to general reserve and an increase in the allocation to reserve for replacements from £250,000 to £300,000. Thus, the com- pany is still ploughing back on a consider- able scale. We shall have to await the full figures to see the group's financial position, but it is worth noticing that at the end of 1950 Swan, Hunter showed net liquid assets equivalent to about £4 a share. The company held cash of £4,677,740, Govern- ment securities of nearly £1,200,000 and Tax Certificates of just over £1 million. The £1 Ordinary units have shown some slight improvement following the dividend in- crease and now stand at £3, to give a return of 6 per cent. With the shipbuilding industry, as a whole, assured of good em- ployment for several years ahead these shares look to me a worth-while purchase for long-term investment.
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