FINANCE AND INVESTMENT
By CUSTOS
• THIS is .3 twilight for markets. Only a whisper -of peace in Korea has suddenly brought what was a background factor in the investment equation into much greater prominence If there is peace in Korea could it not follow that America's stock- piling might be so slowed down as to take the bite out of the demand fot commodities and produce, if not a slump, at least a busi- ness setback in the United States as to send threatening ripples Over here ? At this stage there cannot be any confident answer. The Soviet hoisting of doves must obviously be suspect and one must also keep in mind the important fact that even if peace comes in Korea we are still committed to a large-scale programme of rearmament which is not at all likely to be cut down. In other words, the " worst " that one need be prepared for in the Stock Exchange sense, is some slowing down of America's stockpiling of rubber, tin and other key commodities but not for any major setback.
Up to the present investors have been content to interpret the new situation in this sense. There has been no rush to sell indus- ' trial equities or commodity shares-although jobbers have taken the precaution of lower- ing quotations-and equally the institutions have not rushed in as buyers of gilt-edged .stocks. Until there is a clearer lead from the international political front, investors should stand turn.
Burrnah Oil Position • Since I discussed the position of the £1 ordinary units of the Burmah Oil Co. on June 8th, the price has fallen back from 67s. 6d. to 63s. 9d. This movement is in line with the general setback in leading oil shares, but has obviously been considerably influenced by the deterioration in the situa- tion at Abadan. Burmah Oil is closely interested in the fate of the Anglo-Iranian Oil Co., not only as the holder of £5,342,985 of Anglo-Iranian ordinary stock, but also on account of its dependence for some of its supplies for its extensive marketing business on the Anglo-Iranian output. Fortunately, however, Burmah Oil has been able during the past year or so to increase substantially the proportion of its total oil supplies which comes from its own production. In the full accounts for 1950 Sir Kenneth Harper refers to some improvement in the position in Burma itself but, with characteristic caution, reminds stockholders that the payment of the 6 per cent, cash bonus on top of the 15 per cent. dividend, carries no implication that it will be repeated in future years. Sir Kenneth was obviously right in issuing this warning, but it is worth pointing out that the total distribution of 21 per cent. for 1950 has been paid out of earnings of 371 per cent. In other words, only a severe setback in earnings could justify any decision to pay less than 21 per cent. for the current year. In this context one has to remember that Burmah Oil will have the benefit in 1951 of the highest distribution made by "Shell" Transport and Trading. Its income from this source will be increased by £160,000 gross. What the prospects are 'as regards revenue from the even larger investment in Anglo- Iranian Oil stock is anybody's guess but it will be surprising if less is forthcoming from this source this year than last.
As to assets, the Burmah Oil position, as I have previously pointed out, is immensely strong. On a conservative valuation asset values amount to well over 90s. a share against the current price of 63s. 9d. for Burmah Oil £1 ordinary units. My conclu- sion is that Burmah stockholders should be prepared to ignore short-term market fluc- tuations and see things through.
Canadian Eagle Position
Another leading oil share which has proved a disappointment to the " bulls " is Canadian Eagle, which has merely main- tained the payment on the ordinary shares at 10]d. for the past year. Admittedly, a larger ordinary capital ranked for this payment, but after the higher distribution announced by "Shell " it had been confidently expected that this important unit in the " Shell " group would see fit to allow the ordinary stock- holders to participate in higher earnings. Net profits for 1950 rose from £2,938,064 to £3,301,351, increased operating costs being more than offset by an expansion in turnover and improved selling prices. Canadian Eagle has written off large sums on some of its investments on the production side, but has the benefit of the steady growth of the Eagle Oil and Shipping Co., whose fleet now con- sists of twenty-two tankers. Moreover, the company has an interest in Shell-Mex and B.P., whose marketing operations must be yielding a steady increase in revenue. Following the profit and dividend announce- ment, Canadian Eagle bearer shares have fallen from 40s. to 36s. 64. at which they yield just over 4 per cent. They should now be due for some recovery, even though the yield, allowing for the special tax position, is only 41 per cent.
Amalgamated Press In face of the rising trend of publishers' costs, Amalgamated Press have amply ful- filled recent Stock Exchange forecasts by declaring a final dividend of 20 per cent. This brings up the total distribution for the year to March 31st to 25 per cent., against 20 per cent. for the preceding year, and the 10s. ordinary shares have moved up from just under 40s. to 42s. 64. Group profit, after all charges, including £2,300,933 against £2,166,006 for taxation, reached a new peak at £2,066,438 against £1,987,130. Net earn- ings on the somewhat highly geared ordinary capital are equivalent to nearly 140 per cent. At the present price the 10s. units offer the superficially attractive yield of just over 6 per cent. on a well-covered dividend, but one feels that in spite of the growth of the reading habit, picked up by many people during the-war and which has obviously stood the group in good stead in recent years, net profits may be hard to maintain in a period of steadily rising costs.
Bid for Matador Land The process of liquidating British invest- ments abroad continues. The only consola- tion is that in some instances at least- the assets are being disposed of at what must be
judged satisfactory prices. Two months ago shareholders in the Brazilian Warrant Com- pany were bought out by Brazilian interests at an attractive figure. Now comes the news that shareholders in the British-owned Matador Land and Cattle Company, which owns lands and cattle in Texas, are being offered 23.70 American .dollars a share. Here is the explanation of the rise from 50s. to £10 which has taken place in the com- pany's shares in the London market since the long drawn-out negotiations were started about seven months ago. It is alwayi difficult to assess the value of an overseas asset of this kind, 'but by reference to recent earnings the American bid looks generous. For those who do not wish to take the dollar price offered and reinvest in American securities, Lazard Bro. have guaranteed- a sterling price. This guaranteed figure of £9 6s. 3d. a share is based on the dollar bid, increased by a London premium of 10 per cent, on dollar securities. At present the dollar premium in the London market is around 14 per cent, but holders will get the benefit of any improvement over 10 per cent. actually realised by Lazards in disposing of the dollars, subject to a handling charge. Apart from the attractive cash payment Matador Land shareholders are to receive a half interest in the company's oil and mineral rights in the United States. The value of this residual interest cannot be accurately assessed but, with the shares quoted just under £10, the market is taking the view that something like 10s. a share is a reasonable guess at this stage. So far drilling operations by one of the leading American oil companies have failed to indi- cate the presence of oil, but it can easily be imagined that the shares would becoine a popular speculation if oil were, in fact, dis- covered. Tempting as it may seem to many Matador Land shareholders to take their profits in the market around £10, I think it should still pay to take up the residual interest and see things through.
A Ncwspaper Share
Newspaper.shares have been in the specu- lative limelight recently, particularly as a result of the increase in selling prices and partly through bonus distribution announce- ments. There should still be some scope, however, after the recent rise, for speculative investors prepared to take the long view. A case in point is provided by "Daily Mirror" newspapers, whose 5s. ordinary shares are now quoted around 30s. 6d. The yield on the latest dividend, which has been main- tained at 30 per cent.; is just under 5 per cent. but on assets there is a substantial under- valuation. "Daily Mirror" holds some 708,000 shares of Anglo-Canadian Pulp and Paper's total share capital of 1,050,000 shares. Out of this holding 40,000 were recently marketed in Canada at 529.50 and are now quoted at $32.50. The shares may. therefore, be said to have a value of approxi- mately £10. Taking this valuation and allowing for "Daily Mirror's" other assets. the break-up value can be estimated con- servatively at 38s. 9d. If one takes the Anglo-Canadian Pulp and Paper asset alone. this is equal to about 23s. on every "Daily Mirror" share, leaving at today's market price only 7s. 64. to cover assets which can be safely estimated to be worth about 15s. a share and which are producing earnings of about 26 per cent. on the company's capital.
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