FINANCE AND INVESTMENT
As I predicted, the disturbances cork the home political front have merely braked the rise in industrial equities without causing any real change in trend. Even the developments in Persia have affected only the shares of the companies immediately concerned, and raw material shortages have not so far counted for much as a market factor. It is plain enough that in their present mood investors are prepared to give hope the benefit of many doubts and to pin their faith in ordi- nary shares as the best " hedge " against mounting inflation. Provided that buyers are discriminating they should not come to any serious harm, although in the present state of international politics one must obviously be prepared for shocks.
Imperial Chemical Profits City hopes that the board of Imperial Chemical Industries, Britain's largest indus- trial concern, would see fit to join the ranks of the dividend raisers have been duly ful- filled. As might have been expected, a com- pany with such large capital commitments as 1.C.1. has not broken with rigid dividend limitation on really extravagant lines. The payment to Ordinary stockholders is up from 10 per cent. to 12 per cent., but it is apparent from the preliminary figures that the higher rate is being paid out of net earnings of something over 50 per cent. The really sur- prising feature of the I.C.I.'s preliminary statement is not the increased dividend but the spectacular expansion in earnings. Group profits are shown to have risen in 1950 from £17,300,000, before tax, to £31 million, a jump of nearly 80 per cent. We must wait for the annual meeting to get a full explanation of this remarkable per- formance. Doubtless the benefits of the group's large-scale capital expenditure in recent years are now beginning to appear and it can also be assumed that higher sell- ing prices have easily matched the increase in costs.
Another impressive aspect of the pre- liminary statement is the large surplus of over £96 million which results from revalua- tion of the group's manufacturing assets on the basis of current replacement costs. This surplus is added to reserves, raising them to over £144 million. In this revaluation exer- cise one detects clearly the hand of Mr. S. P. Chambers, the I.C.I. finance director. By producing this factual evidence of the real scale of depreciation required to maintain assets Mr. Chambers has called attention once again in a striking way to the excessive level of industrial taxation. Always provided that stockholders do not get wrong ideas about assets values this revaluation seems to me to set a useful precedent in company
accounting. On the strength of the profit and dividend statement I.C.I. £1 Ordinary
units, which have latterly been an improving market, have moved up to 51s. At this level
they are yielding 41 per cent. on the dividend and about 20 per cent. on last year's earnings. In view of the group's immense financial strength and the promising outlook for profits, the units seem to me to be very moderately valued. They are a first-class industrial equity.
Cunard's Peak Year Nobody could accuse Mr. Frederick A. Bates, chairman of the Cunard Steam-Ship Company, of being over-optimistic. It has come as a shock, nevertheless, that he should forecast a fall in the group's operating profits this year, compared with last. In his annual statement Mr. Bates emphasised that in 1950 the group got the benefit of devalua- tion, without incurring many of the conse- quential handicaps. His conclusion is that 1950 was a peak year and that steadily rising expenses will make heavy inroads into gross 'earnings in 1951. Fortunately, there is no need for stockholders to draw the conclusion from this somewhat gloomy forecast that the 124 per cent. rate on the Ordinary capital will need to be reduced. On the contrary, the very fact that such a conservative board of directors- has just seen fit to step up the rate from 10 per cent. to 121 per cent. can safely be taken as indicating that the divi- dend, in anything like normal conditions, can be maintained. From the full accounts for 1950 it is apparent that the earnings cover was substantial. On conventional reckoning the 121 per cent. was paid out of earnings of over 70 per cent., the operating surplus having risen from just under £9 million to £10,800,000. Like other shipping undertakings, the Cunard faces a difficult tonnage replacement problem. Mr. Bates put it .in true perspective by emphasising that at present prices it would cost £120 million to replace the group's fleet, which at December 31st last stood in the books at £28,700,000. As usual, the balance-sheet shows. a strong financial position. Against capital commitments of £3,200,000 liquid resources amount to over £27 million. Cunard £1 Ordinary units arc now standing at 42s. 6d., yielding 6 per cent. on the divi- dend and giving an earnings yield of over 30 per cent. They are still worth holding.
Retail Provision Profits
It says a good deal for the efficiency of the Home and Colonial Stores group that last year, in face of higher costs, most of the constituent companies succeeded in raising their profits. It appears that higher expenses were counterbalanced by the benefits of a rise in the money value of turnover, both in home and overseas markets. Home and Colonial, the largest company in the group, made a net profit of £617,965, against £516.038, and similar improvements are re- corded by Lipton, Meadow Dairy and May-
pole. On the strength of these increased earnings the directors have seen fit to announce moderately higher dividends.
'cent., against 9 per cent., Lipton dis dend is up from 124 per cent. to 15 per cent. and the payment on May- pole Deferred Ordinary capital is 5 per cent., against 3 per cent. The shares in which there is the freest market are the 4, Ordinary units of Home and Colonial, which have moved up to 7s. 6d. At this level they are offering a return of approxi- mately 61 per cent., which looks to me about right for this type of holding.
United Molasses Dividend In fulfilment of their promise made in announcing the 100 per cent. scrip bonus in
February the directors of United Molasses Company have declared a final dividend for 1950. This is at the satisfactory rate of 61 per cent., tax free, and brings up total pay- ments to the equivalent of nearly 44 per cent. on the capital as it stood before the bonus issue, whereas for 1949 the dividend Was 271 per cent., supplemented by a 24 per cent., tax free, payment out of capital reserve. It is hard to find much guidance in this com- parison in the important matter of estimating what dividend United Molasses are likely to pay on the doubled capital for 1951. I should be inclined to put the probabilities somewhere between 221 per cent. and 30 per cent. gross, since distribution on this scale should be covered by an adequate margin. The amount involved to pay 22-1 per cent. would be rather less than £350,000. Against that figure may be set last year's net profit of the group, after depreciation and taxation, of £1,215,682. United Molasses 6s. 8d. units have been a strong market in recent months and are now up to 67s. 6d., or the equivalent of 33s. 9d. ex the 100 per cent. bonus. They may well move higher in inflationary markets.
A Progregive Industrial
Investors seeking a progressive industrial equity share in a small company with a strong balance-sheet might consider the 5s. Ordinaries of lacksons' Millboard and Fibre. This company, whose products are con- sumed by a wide range of industries, inclu- ding radio, television, motor cars, boots and shoes, has an excellent earnings record and good finances. In each of the past four years a 25 per cent. dividend has been paid and covered by a wide margin of earnings. For the year to March 31st. 1950, the 25 per cent. rate was paid out of earnings of 72 per cent. Since then the company has distributed a 334 per cent. scrip bonus but the interim has been maintained at 8 per cent. and there should be no difficulty in paying the usual 17 per cent. final. The last balance-sheet showed a general reserve of £220,000, against the present issued capital of £200,000, so that it would not be surprising if the board decided to make another bonus issue when the final dividend is announced towards the end of this month. The 5s. shares are quoted around 25s. 6d. to yield just under 5 per cent. on the present rate. They seem to me to have scope for improvement, in view of the company's well-established position and pro- gressive earnings record.
Previous page
