FINANCE AND INVESTMENT
By CUSTOS
AT the opening of a new year the pattern of markets is much as has been widely ex- pected. Gilt-edged stocks are finding it hard to stand up to desultory selling, industrial equities are drifting rather aim- • lesity;"and buying interest, both of the investment and speculative kind, is highly selective. So far it has been concentrated on tramp shipping shares—I regard this as a dangerous movement—and on foreign bonds and various deferred overseas securities with recovery chances. While I do not take a pessimistic view of the medium-term outlook for sound industries, the scope for improvement before the Budget must be quite limited. A policy of partial liquidity seems to me appropriate in present uncertain conditions.
Bank Dividend Prospects
First among the banks to announce its profit and dividend for 1951, Martins shows only small changes. The published profit of £725,107 compares with £732,895 in 1950, and for the thirteenth successive year the shareholders get a dividend of 15 per cent. Although there are bound to be some variations in the pattern of banking profits I think one is safe in assuming that these Martins figures will prove fairly typical. Last year the banks had the advantage of the use of a larger volume of deposit re- sources and of a sharp expansion in advances, being the most remunerative outlet for banking funds. Gross earnings must there- fore have shown a satisfactory improvement, especially as there was an increase in the banks' activities in the overseas field. Unfortunately, two adverse factors need to be taken into account in assessing the prospects for dividends. One is the steady rise in costs, which continued last year and has not yet been halted. The other is the effect of the recent sharp fall in gilt-edged prices in compelling the banks to thaw on their inner reserves to cover the depreciation on their large gilt-edged holdings. I feel that if this problem had not arisen the share- holders of some of the banks might have received a modest increase in dividend for 1951. As things are, the bank directors, who are nothing if not cautious, will almost certainly adopt a policy of no change.
Howardsgate Trust
Shareholders in the Howardsgate Trust, the offshoot of the old Welwyn Garden City Company, will find some encouragement in the latest accounts covering the year ended September 1st, 1951. Among the satis- factory features of the report is the dis- closure by the company's chairman, Sir Theodore Chambers, that the company's claim under the Town and Country Plan- ning Act in respect of depreciation of land values is coming out quite well. This claim, which was taken over by the Trust from Welwyn Garden City, the former parent company, is carried'in the Trust's balance- sheet at £500,200. The chairman now dis- closes that agreement has been reached with the Valuation Department of the Inland Revenue on a figure of £345,185 for the " near-ripe " claim. It is expected that this sum will be settled by the compensation payment in full at the end of June, 1953, together with five years' accumulated inter- est, which less Income-tax, will mean an additional £16,375. This gives a total of £361,560 as the calculated present value of this part of the total claim. Excluding the interest, this settlement leaves the balance of the claim in the company's books at only £155,015, whereas further general claims amounting to £321,460 have already been agreed. As Sir Theodore points out, " having regard to the basis of valuation and to the fact that the company has un- doubtedly suffered the full loss of this amount, the whole of this additional sum should, in justice, be settled by the award of the appropriate compensation in full." It appears, therefore, to be a strong prob- ability that the £500,200 book figure for the Trust's total claim will be covered by an ample margin in due course. Meantime, the group's earnings reflecting the board's expansion policy have expanded from £93,055 for the preceding period of seven- teen months to £122,427, and the dividend has been increased from 5 to 54 per cent. Against this must be set the chairman's statement that, although the various sub- sidiaries have continued to develop satis- factorily, trading conditions have become progressively less buoyant. It will also be noticed that the consolidated balance-sheet reveals bank overdrafts of £409,827, against £13,160, which suggests the possibility of a funding operation in the fairly near future. Howardsgate £1 Ordinaries, which have been up to 19s. 9d., are now quoted in the market around 16s. 6d., yielding 64 per cent. They look to me to be reasonably valued in present conditions.
Shell Attractions City expectations of the board of the.
Shell " Transport and Trading Company are usually pitched on the high side. This week there were optimistic forecasts that Shell's interim dividend, which a year ago was doubled from 24 per cent. tax free to 5 per cent. tax free, would again be increased. In the event the payment is merely being maintained, which in my view should satisfy all reasonable hopes. While there can be no doubt that the Shell group has had another good year, which should lift the 1951 profits to a new record, it seems to me that the board is fully justified in postponing any decision to raise the total dividend until the final payment is due in May. For 1950 the 5 per cent. interim was followed by a final payment of 74 per cent., which brought up the total to 124 per cent. tax free. Even if there is nq increase for 1951, Shell £1 Ordinary units, which have fallen back a little during the past fev:, days, would still be good value for money at 95s., yielding approximately 5 per cent. As I think the chances of an increased final in May are quite good, I also regard Shell as a sound holding and as offering some scope for capital appreciation in 1952. Stores Deal Off It is a striking commentary on current market conditions that the announcement by Great' Universal Stores that Mr, Isaac Wolfson's projected expansion plans in America have been held up by the Bank of England has led to a firmer price in the company's 5s. Ordinary shares. The obvious explanation is that, if the proposed purchase of a chain of stores in America had gone through, the company would have been compelled to raise new money in ster- ling on this side. With the market in its present state even a hint of a new share issue is sufficient to depress quotations. From the official statement it is plain that the Bank of England is taking a strict view of dollar investments by British companies, as it is clearly entitled to do at a time when Britain's dollar shortage has again become acute. For the Oresent, therefore, apart from expansion plans in Canada, Mr. Wolfson's Great Universal Stores must be content to pursue a policy of consolidation. With the retail trade showing some signs of falling off and certainly of becoming more competitive, to say nothing of the possible restrictions in the field of hire-purchase, a policy of consolidation will seem to most people more appropriate than further bold expansion. At 27s. Great Universal Stores 5s. Ordinaries are yielding 74 per cent. on the 40 per cent. dividend, which is covered by a large margin of earnings. In current conditions the yield is not too high.
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