FINANCE AND INVESTMENT
By CUSTOS Tins has been a week of accumulating evidence that at long last disinflationary policies are beginning to get the upper hand. Commodity prices have again been falling— gently in most cases but quite sharply in the case of rubber—there have been fresh warn- ings of keener competition in some sections of the home trade and in the export market and interest rates are still moving up. Against that sort of background I am not in the least surprised that Stock Exchange prices have again been in retreat not only for gilt-edged stocks which have been depressed by the unexpectedly sharp rise of
per cent. to 51 per cent, in the Agricultural Mortgage Corporation's interest charge on new loans but also for industrial equities and commod.ty shares. Another contri- butory influence has been the behaviour of Wall Street which has now begun to suggest widespread doubts about the ability of the American business currency to maintain its activity at peak levels. On top of all this has come the news of the postponement of the Budget from March 4th to March 11th. Since Mr. Butler's Budget medicine is bound to be far from palatable some people may have thought that postponementi-even for a week, would be welcomed in the City. This is not so. To the City this delay only spells another week of waiting and uncertainty and, of course, another week for which funds available for investment will be held back. Imperial Chemical new shares, which had been heavily bought by specu- lators as a cheap option on Budget possi- bilities,'have naturally been hit by the change of date. The first call of 20s. due on March 7th is now payable before not after the Budget ; hence the short-term specu- lators' haste to sell which has brought down the premium from Is. to 3d. An opportunity here for the serious investor.
Hope for Gold Shares
On February 8th I posed the question whether the time had not come to make moderate purchases of gold mining shares after their heavy fall over the past two years. This question has now come into the fore- front of City discussion, although the back- ground as I see it has not changed materially during the past three weeks. Two develop- ments do seem, however, to have strength- ened.the basis for cautious hopes about the outlook for the producers, of gold. One is the further fall in' commodity prices, which indicates a probability that the rise in work- ing costs, which has been the main affliction of gold producers since the devaluation of 1949, is nearing its end. The other is the growing possibility of some recession in American business, which might induce the American Treasury to alter its view on the dollar price of gold and raise the American price of the metal as a means of bolstering up world purchasing power. There are, of course, minor " bull " points such as the projected increase in uranium output in South Africa, which should provide a source of additional profit for at least half-a- dozen mines, and the possibility of some adjustment of the taX burden in the coming South African Budget. I hesitate to mention the question of some fresh devaluation of sterling. In my view such a development is unlikely, but one cannot ignore the fact that
for some time ahead the pound will still be waging a grim battle in the foreign exchange market. Although, therefore, 1 still feel it is difficult to make out a cast-iron case for buying gold shares, I think the indications are sufficient to justify moderate purchases. If for no better reason than that industrial equities and commodity shares are now under a cloud, gold shares seem likely to attract much of whatever speculative interest there is during the coming months. Stilfon- tein around 27s. look a good proposition in this field and there might be some scope in Consohdated Rand Investment Trust 5s. shares around 6s. 6d.
Ilford Growth Shareholders of Ilford Ltd., the photo- graphic material makers, have good reason to be satisfied at the rate of progress achieved by their undertaking in recent years. The latest figures covering the year to October, 31st, 1951, carry on the story of expansion. Trading profits have moved up to a new record at £1,518,192, against £1,328,152, and a dividend of 15 per cent. has been declared on a capital increased by a 100 per cent. scrip bonus. Turnover both in volume and value set up a new record and more than counterbalanced further increases in costs. In his statement the Ilford chairman warns shareholders that there are indications that this year will see the end of sellers' markets in photographic materials. On the other hand, he points out that most of the group's business is of an essential nature, less than 12 per cent, of output going to the home snapshotter. The group has a large export trade and has still to reap the benefit of a good deal of capital expansion. The 5s. shares at 12s. 6d. are now yielding 6 per cent. This seems to me a reasonable valuation.
Harrods Earn Less
First among the large London stores to announce their profits for the year to January 31st, Harrods have fulfilled recent City estimates in announcing a moderate setback in earnings. Consolidated net profit, arrived at before taxation of Harrods and their subsidiaries, has fallen from £1,526,963 to £1,349,816, after transferring only £15,000, against £47,445, to reserve for replacement of assets. Since the taxation charge was practically unchanged at £878,987 net profit, after tax, was down from £649,847 to £470,829. In the light of these figures it would not have been altogether surprising if Sir Richard Burbidge and his co-directors had decided to reduce the total distribution on the Ordinary stock either by omitting or by cutting the 5 per cent, cash bonus which for the last five years has supplemented the 15 per cent. dividend. Ordinary stockholders are spared this blow, however, the 20 per cent, total being maintained despite the fall in net earnings. This involves reducing the appropriation for building reserve from £80,968 to £50,000 and omitting any transfer to contingencies reserve, which a year ago received £50,000. The balance forward is practically maintained at £324,377. I find it difficult to gauge whether these results from Harrods are likely to prove typical of those of other London stores. As a broad generalisation it is probably true that last year profits iroin tn.: sat.: of luxury and semi-luxury goods were hit worse than those on essential goods. It also seems to be the case that stores whose fortunes are closet!, bound up with sales of textile goods have suffered more than the average. Following the announcement of the preliminary figures Harrods £1 Ordinary units have fallen by several shillings to 52s., at which they are offering a yield of approximately 71 per cent. The fall from last year's high point of 71s. 6d. has been severe, but I would not recommend a putchase at least until after Budget Day.
Bowater Stock Position
As expected, the full accounts of the Bowater Paper Corporation, which extend this year to 71 pages, disclose a sharp increase in the group's stocks. In the consolidated balance-sheet, dated September 30th, 1951, stocks are shown to have risen from £9,930,299 to a new record level of £16,346,597. Reviewing this change, the directors emphasise that the sharp increase is attributable much less to any greater volume than to increased cost. This in turn explains their decision to make substantial provisions out of profits against possible losses in stock values in the future. While prices for raw materials continued to rise throughout the year under review, and indeed until quite recently, indications have now appeared that these prices may have reached their peak. Consumers will certainly hope so, and in the long-term interests of stockholders a downward adjustment of selling prices should also be welcomed. As I emphasised last week, inflationary con- ditions had a powerful influence in the spectacular rise in the Bowater group's profits from £5,395,488 to £10,275,537. The full accounts, now disclose that a not unimportant part of the increase has been attributable to higher production and that overseas subsidiaries have been responsible for a substantial proportion of the higher -earnings. Reviewing the outlook in its broader aspects, the Bowater directors record their view that "on the whole the outlook both at home and overseas continues to appear to be not unsatisfactory." With the cash .position still healthy, despite the sharp rise in stocks, and with the 15 per cent, dividend covered by a large margin of earnings Bowater's £1 Ordinary units now quoted around 38s. to yield 71 per cent. seem to me to be unduly depressed.
Havana Debentures For those who are attracted by the low- priced stocks in the overseas field with recovery possibilities the Debentures of United Railways of the Havana look an interesting proposition around today's price of £18. This is the price of the 1906 Debentures per £100 nominal of stock. 1 need not say that no interest has been forth- coming on these Debentures for a great number of years. Their scope for improve- ment now lies almost entirely in the possi- bility that the railway will be taken over by Cuban sugar interests. Various sugges- tions have been made about the likely purchase price if a deal goes through, and it is hard to imagine that any price acceptable to the company would not be substantially above today's market value of the com- pany's various securities, which is only around £3 million. For buyers who have patience the Delentures around their current price look to me a promising speculation
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