FINANCE AND INVESTMENT

By CUSTOS

AFTER their heavy buffeting markets have entered a more tranquil 'phase. For the time being, at least, selling has abated and although there is no sign of any confident resumption of buying, prices have steadied under the lead of gilt-edged. This, I think, is an encouraging performance, especially so soon after the dismal failure of the £14,000,000 Lever debenture issue. Can one now expect a rapid improvement ? There are, in my view, too many uncertainties in- the outlook for that, not to mention the long queue of borrowers in the wings waiting to mop up surplus funds. If markets maintain their convalescence without any fresh relapse they will be doing all that can reasonably be expected for the near future.

Anglo-Iranian Position

Stockholders in the Anglo-Iranian Oil Company have been well prepared for good earnings figures for 1950. They will, never- theless, be agreeably surprised by the spectacular rise in profits now disclosed. Last year gross profits soared from £63,020,405 to a new record of £115,495,994. As Sir William -Fraser explains in his very full and balanced survey of the group's position and prospects, this large increase in gross profit was attributable mainly to a 26 per cent. expansion in sales of crude oil and other oil products, flanked by a rise .ot 20 per cent. in average selling prices. These influences were reinforced by higher freight rates, which greatly increased the group's return on oil carried in its own tankers. Group trading profit was more than doubled at £81,300,622, against £38,666,485, and was struck after charging £34,195,372 for depreciation, which compares with a pro- - Vision under this head of £24,353,92Q in 1949. It is clear from the Anglo-hanian chairman's statement that group trading profit was also struck after charging £16,031,735, against £13,489,271, for royalty paid to the Iranian Government under the 1933 Convention. Even so, the net amount available for reserves and dividends, after

deducting taxation, was up from £18,390,016 to £33,102,572. The board's decision to maintain the 30 per cent. dividend on the Ordinary stock is readily understandable against such an impressive earnings back- ground.

Dividend Prospects

In estimating the future, two questions which obviously need to be considered are the effects on earnings of the loss of the company's oil production and refinery in Iran and, from the longer term standpoint, the possible inroads on available profits of some new royalty agreement with the Iranian Government. So far as the latter possibility is concerned, the accounts demonstrate con- clusively that the group's earning capacity is such that arrangements could be made for a generous profit-sharing scheme with the Iranian Government, which would still not be incompatible with good dividends for the Ordinary stockholders. As Sir William Fraser points out, if there had been no inter- ruption in the company's operations this year the working of the proposed supple-

mental agreement, based on a tonnage royalty on Iranian oil, plus 20 per cent. of the company's profits from all its activities, allocated to Ordinary dividend or general reserve, would have given Iran approxi- mately £50 million for 1951. Meantime, the formidable sum of £40,487,440 stands at the credit of a special contingencies account, which could be drawn on as part of any new settlement to meet back payments due. As for immediate dividend prospects, Sir William is reassuring. Stockholders are told that, barring wholly unforeseen events between now and the end of next month, the company will be able to maintain the 30 per cent. Ordinary dividend. Mean- time, the Anglo-lranian £1 Ordinary units are a firm market around fn. At this level they are yielding approximately 54 per cent. on a dividend covered by a large margin of earnings. In view of the immense strength of the group's assets position outside Persia I think holders are fully entitled to see things through.

Barclays (D. C. & 0.) Bonus Free scrip bonuses arising out of the capitalisation of reserves, nowadays a commonplace of industrial company finance, are still a rarity with the banks. Shareholders in Barclays Bank (Dominion, Colonial and Overseas) have, therefore, been agreeably surprised at the board's decision to give a one-for-four scrip bonus on the " A " Ordinary shares. The directors point out that as business has expanded the issued capital has become more and more out of line with the increasing liabilities. The pro- posed scrip bonus will raise the paid-up capital to about £8,800,000, and the board are taking steps to increase the authorised , capital by another £5 million, from £10 million to £15 Million. This need not, I think, be taken as pointing to any early new issue for cash or of additional " A " shares, despite the fact that the bank's scale .of operations is steadily increasing. For the year to September 30th net profit, after tax, has 'risen from £683,201 to a new record of £769,581,:with the result that the .8 per cent. dividend is covered by a very large margin.

I thinly it is a safe inference that, barring unforeseen adverse developments, this 8 per cent. rate' will be maintained on the " A " Ordinary capital as enlarged by the proposed free bonus. Assuming an ex-bonus price for the shares of around 35s., which is in line

with the present quotation of 44s., Barclays (D. C. & O.)." A " Ordinaries give a prospec- tive dividend yield of just over 44 per cent. —a good return on the equity of a progres- sive banking institution.

Wiluna Estimate

Having recommended the £1 shares of the Wiluna Gold Corporation for their break-up attractions_ when they were quoted substan- tially below today's level of 13s. 6cL, I am well satisfied with the liquidation prospect opened up by the latest report. This shows -that the Australian subsidiary now has net liquid assets amounting to £1,275,000 in Australian currency. Its remaining ?ssets have an estimated realisable value of a

further £60,000, giving a total of £1,335,000 Australian, which, at the present exchange rate, is equal to £1,068,000 in English currency. As the parent concern, in which investors here are directly interested, his itself net assets of just over £30,000, we arrive at a total of £1,100,000 available, sub- ject to any deduction for compensation, on the £1,559,012 of issued capital. This is equivalent to just over- 14s. a share. As the winding-up process should be completed within a reasonably short period I advise holders to await the liquidation payment.

Motor Merger Surprise

Not for many years has a financial secret Of the magnitude of the Morris Motors- Austin Motor merger been so well kept in the City that there was not even a whisper in advance of the actual announcement. This is greatly to the credit of all con- cerned in the merger discussions and has left the market this week with the task of adjusting the Ordinary shares of the two companies to the proposed exchange terms. It has done so by raising Austin Motor 5s. Ordinaries by about 2s. 6d. to 35s. and by making a slight downward adjustment in Morris Motors to much the- same level. At 35s. the market, in effect, is valuing the equity of the proposed new holding com- pany on a yield basis of just over 7 per cent., since it can, I think, be assumed with reasonable safety that the holding concern will distribute not less than the 27 per cent. tax free at present in force on Morris Motors' Ordinaries. Amalgamation of these two large units in the motor industry into a single undertaking with assets of close on £66 million should obviously, pave the way for operating economies and for savings on the distribution side, especially in the export markets.

A Cheap Rubber -Share

I referred recently to the merits of Krubong Rubber shares on deaf possibilities. The price has moved up substantially in

recent weeks. Another share -in this cate- gory„ which seems to me to have distinct possibilities, is the 2s. Ordinary of Cicely Rubber' Estates. This company has just negotiated..7a .sale of 1,565' acres for £116,670, equivalent to £74 10s. per planted acre, following which the price of the shares has moved up from 2s. 9d. to 3s. 44d. At this higher level, however, the shares look to me to be considerably under-Valued. The price puts a value on the wholeundertaking of just under £250,000. Against this we have the £116,670 from the sale; plus over £100,000 of net liquid assets shown in the last balance-sheet, dated March: 31st. This implies that a buyer at today's price is giving only about £20,000 for the', company's remaining properties of over 3,000 plant_ .1 acres, or less than £7 a planted acre. The important point is that the recent sale still leaves the company in possession of its best acreage, so that the company will still retain a considerable earning power. If, as may be assumed, the purchase money is applied in repaying capital, shareholders should receive a return of, say, Is. 9d. a share in the not distant future. In my view what is left should' beworth substantially more than the

7-1c1. difference between the present market price of 3s. 41d. and the prospective cash repayment.