FINANCE AND INVESTMENT
By CUSTOS
FOR investors, as for the nation, 1952 began with foreboding and ended with restrained • hope. We may now have reached" the end of the beginning " of the struggle for economic recovery, but even • that is still uncertain. The issues are so complex that hardly anyone in the City would stake his reputation on a stock market forecast for 1953. Even if there is no extension of the Korean war, this country still has the for- midable task of maintaining solvency and achieving the gradual convertibility of sterling in face of keen foreign competition and an alarming Budget deficit, with heavy defence and housing burdens and the added commitment to finance large-scale Com- monwealth development out of inadequate savings. There are the related problems, too, of providing incentives to increase output and of easing the tax burden which is hinder- ing industrial re-equipment. Taxation relief will be difficult to provide in 1953, but it may be still harder in 1954, when lower company profits will be reflected in reduced revenue from taxes.
" Super-Priority " Aircraft One of the grounds for Mr. Butler's con- fidence may be the hope of large orders for British jet airliners, which will be helped by the extension of super-priority to the Comet, Viscount and Britannia airliners. The announcement of the extension had a stimulating effect on aircraft shares, which is not surprising in view of the estimated £1,000 millions expenditure on aircraft replacement during the next ten years. British manufacturers now have an excellent chance of obtaining a high proportion of these orders and of improving on their present exports of £45,000,000 a year.
Including military machines, Vickers now have three super-priority aircraft : the Viscount propeller-turbine airliner, the Swift fighter and the Valiant four-jet bomber. Hawker Siddeley also have three : the Hunter and Javelin fighters and the Vulcan four-jet bomber. Handley-Page produce the four-jet H.P. 80 crescent-wing bomber, which recently made its first flight ; the Comet is made by De Havilland ; and the Britannia long-range turbo-prop airliner, which will carry up to 100 passengers at low cost, is a Bristol Aeroplane product. Other super-priority aircraft include the English Electric Canberra twin-jet bomber and the Fairey Gannet anti-submarine aircraft. Cur- rent . prices and yields, with approximate earnings cover for dividends, are : Bristol (10s.) price 26s. 3d., yield £5 2s. 9d. per cent., covered 1.8 times ; De Havilland (£1) price 31s., yield £4 16s. 9d., covered 4.8 times ; Fairey (10s.) price 30s. 9d., yield £8 2s. 6d., covered 2.6 times ; Handley-Page (5s.) puce 10s. 6d., yield £6 7s. Od., covered 2.2 times ; Hawker Siddeley (£1) price 38s., yield £5 5s. Od., covered 8.6 times ; English Electric (£1) price 59s. 6d., yield £5 Os. 9d., covered 3.8 times ; Vickers (£1) price 44s. 9d., yield £5 I Is. 9d., covered 3 times. English Electric and Vickers, of course, have many other important interests, and the shares of these companies are probably the most suitable for investors who wish to spread their risks. Of the others Fairey and Handley-Page offer the most attractive yields, but Hawker Siddeley and De Havil- land show the best earnings cover for divi- dends. All seem reasonably valued at current prices.
Lancashire Cotton Confidence and caution are blended in Sir John Grey's annual review of the Lancashire Cotton Corporation, which recently reported a net profit of £1,924,403 for the year to October 30th, compared with £3,354,366 for the previous year. Sir John confirms reports of an improvement in demand, but says that profit margins are narrow and are hardly sufficient to cover interest and depreciation on new machinery at current high costs. The corporation's immediate post-war re-equipment pro- gramme has been practically completed, and a further programme for the continuing replacement of plant by the most modern machinery has been drafted, but the directors are deterred by high machinery prices and installation costs. Another deterrent lies in the inordinate proportion of earnings absorbed by taxation. During the past seven years £9,700,000 has been paid in taxes, or more than six times the amount paid in dividends. The conservative distribution policy has enabled the corporation to build up a position of great financial strength. Current assets of £18,337,000 include £6,509,000 in cash and exceed current liabilities by £12,518,000. Sir John is con- fident that the corporation will receive a fair share of the available trade and expects to be able to report ", a reasonable profit" for the current year. All things considered, the Ordinary units seem conservatively valued around 39s. to yield nearly 71 per cent.
Anglo-Iranian Issue Unless there is a setback in the stock market between now and next Tuesday, when the subscription lists will open and close, the £20,000,000 AngJo-Iranian Oil 5 per cent. First Debenture issue should be a great success. The price is 98+, the stock can be redeemed at par from January 1st, 1974, onwards, and final redemption is on July 1st, 1978. While the amount is large, and further stock with equal ranking may be issued subject to certain conditions (one being that the interest-charge must be covered at least five times by average annual profits for three years prior to any further issue), holders of Preference and Ordinary stocks of the Anglo-Iranian and Burmah Oil companies should find if profitable to. use their preferential application forms. Despite the loss of assets in Persia, which may not Be permanent, the annual interest on the present issue is covered about thirty times by esti- mated earnings for 1952, after charging depreciation on the 1951 basis. The assets cover is also impressive. With such ample security, a redemption yield of £5 2s. Od. per cent., a not too remote final redemption date, and no stamp or commission to pay on allotments, the issue should go well. Current market conditions and prices of comparable Debentures suggest that the stock should be worth at least 100. The general public may also apply, and trusts which are permitted to buy this type of stock should find it an excellent investment.
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