study of the causes of the internal situation of Fl
NANCE AND INVESTMENT
By CUSTOS
IT is a reliable indication of depressed market sentiment when good news is ignored and even indifferent news is given its worst possible. interpretation. That is what is happening now in Throgmorton Street. Higher profits and dividends find little or no response in share prices—the Anglo-Iranian Oil announcement was a noteworthy exception—and Mr_ Dalton's review of the balance of payments position, accompanied by dollar import cuts, has been seized on as a warning of dire things to come. The need for a cautious and discriminative investment policy has been underlined here for many months past. The advice still holds. I am not convinced, however, that the outlook calls for any wholesale jettisoning of good shares. Markets may well recede a little further yet, but there is no logical basis for anything in the nature of a slump.
WELSH STEEL PLAN FINANCING
How seriously one needs to take the nationalisation threat which overshadows the iron and steel industry is still a matter for debate, but it is clear that from now on new financing operations in the industry must take the nationalisation risk into account. I am not surprised, therefore, that the bulk of the money required for the large-scale modernisation scheme in the South Wales sheet steel and tinplate industry is to be found, in the first instance at least, not by the industry itself or by the investing public, but by the Finance Corporation for Industry. The total amount involved has been esti- mated in the neighbourhood of £5o,00o,000, and of this £35,000,000 will be found by the Finance Corporation for Industry through an issue to this institution of 3-1 per cent. Convertible Mortgage Debentures. These will rank behind an issue of £15,00o,000 of 3 per cent. First Mortgage Debentures to be made to the public about the middle of this month under the auspices of a powerful City consortium. The equity capital, which for some years cannot be expected to pay a dividend, will be found by the participating com- panies, headed by Richard Thomas and Baldwins.
This seems to me to be an appropriate set of arrangements in present-day circumstances, and it is difficult to believe that in four or five years' time, when this modernisation scheme should be functioning to full capacity, the outlay will not be justified from the strictly commercial standpoint. The results just announced by Richard Thomas and Baldwins, which show a further sharp increase in profits, are a striking indication of the earning capacity of up-to- date plant in the sheet steel industry. In the dull condition of markets Richard Thomas 6s. 8d. Ordinary shares have derived no benefit whatever from the increase in dividend from 124 per cent. to 15 per cent. and are still quoted around 13s. At this level the yield offered is about 74 per cent., a generous return which can only be explained on the assumption that the current level of earnings is distrusted, or that if the nationalisation risk materialises the com- pensation payment will prove disappointing. In my view, the uncertainties are being over-discounted in the present price, and the same is equally if not more true of the 4s. shares of Baldwins (Holdings), quoted around 7s. 72d. For those who are not intimi- dated by the nationalisation risk, these two shares should prove well worth including in any investment portfolio.
DAVID WHITEHEAD YIELD
In a more favourable market environment there would have been a good response in the price of David Whitehead and Sons is. Ordinary shares to the announcement of a 3o per cent. interim on account of the current year, against the prospectus estimate of 25 per cent. This points to a total distribution of at least 6o per cent. for 1947, so that the is. Ordinaries, now quoted around 8s., are priced to give a yield of 71 per cent. This sort of return can now be obtained by the shares of several of the smaller textile companies, but the position and prospect of David Whitehead and Sons have some special attrac- tions. In the first place, this company is unique in so far as it conducts the whole of the manufacturing and processing operations involved in the production of coloured cotton fancy goods. The balance-sheet position is strong and the dividend prospects have been materially improved by the removal of E.P.T. In recent years profits have attracted substantial E.P.T. liability, so that provided gross earnings can be reasonably well maintained, net distributable profits should from now on be considerably increased. The company has in hand an expansion programme which may involve taking over at least one other textile concern. It appears possible, therefore, that new shares may be issued in the fairly near future.
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