FINANCE AND INVESTMENT
By CUSTOS As I suspected, the indications of a mild recovery in markets discernible towards the end of May are proving reliable. Gilt- edged stocks ase as firm as ever and, more significant, industrial ordinary shares are rallying. While few brokers can report any worth-while resumption of buying, either by institutional or private investors, the selling which has depressed the industrial market since the first post-Budget enthu- siasms wore off has ceased. 1 think there are two main explanations. One is that the fall in ordinary share prices—about 9 per cent. from the post-Budget high point—has been judged to have more than discounted any prospective fall in profits and dividends. The other is the growing feeling that what-. ever recession in trade may lie ahead, it will be of the mild variety and may well be com- batted by a general easing of money rates. There are, of course, many obstacles in the path of any sustained improvement in markets—the problem of re-selling iron and steel shares and the increasing keenness of international competition. But I do not advise selling of good-class equities at this juncture.
" Blue Circle " Cement Expansion Stockholders in the " Blue Circle " cement group have good cause for satisfac- tion with the position disclosed in the full accounts for 1952. In his annual statement accompanying the reports of Associated Portland and British Portland Cement. Mr. George F. Earle makes it plain that only the limits imposed by productive capacity could prevent the group from achieving new output records in 1953.. Home demand is still in excess of supply, despite the additional productive capacity which is steadily being brought in, and there is a keen demand on the export side at satis- factory prices. To meet the combined requirements of home and overseas buyers the group has recently adopted the policy of supplementing supplies by imports from the Continent. This is a stop-gap policy which it may be hoped will give place as time goes on to an enlargement of the group's own output as expansion pro- grammes both overseas and at home come into full operation. Meantime, Associated Portland are paying a 30 per cent. dividend out of available net earnings of about 120 per cent. if one regards the transfer to plant and machinery replacement reserve as an appropriation and not as a deduction from profits. An impressive feature in the accounts is the strong liquid position, net current assets of £13,526,983, showing an increase of over £1,700,000 compared with the end of 1951. The company has suc- ceeded in maintaining ample cash resources, despite the fact that since the beginning of 1948 the group has invested no less than £18,900,000 in its capital programmes at home and abroad. To bring its issued capital into better relation with the real resources employed the company is propos- ing a one-for-one scrip issue to its Ordinary stockholders. This is accompanied by the warning that this piece of book-keeping does not imply that the total amount to be distributed in dividends in the future will be any greater than it would have been if the capital had not been increased. Neverthe- less, with the earnings outlook distinctly promising and such an ample margin of cover behind the 30 per cent. rate, Associated Portland Ordinary stockholders may well feel justified in looking for a modest increase on the doubled capital. Such a possibility is already discounted to some extent in the present quotation of 112s. 6d. for the £1 Ordinary units, on which the dividend yield is now no more than 51 per cent. Although the scope for further appreciation in the near future looks rather limited, these units are a first-class industrial holding.
The Union-Castle Fleet In his first annual speech as chairman of the Union-Castle Mail Steamship Co. Sir George P. Christopher revealed that as a result of the advance in shipbuilding costs to " fantastic levels " the Union-Castle Board are refraining for the time being from embarking on a further building programme beyond the two cargo ships now under construction. Sir George estimates that the replacement of the existing fleet at today's building prices would cost at least £82,000,000, compared with the" historic " cost of £33,000,000 and the written-down value in the balance-sheet of £12,154,000. These figures suggest that the current market value of the fleet may, well be £30,000,000, and on this basis the " break-up " value of the £1 Ordinary units would be £6, com- pared with the current price of about 23s. 6d. On the basis simply of last year's earnings of 41 per cent. and the dividend of 7i per cent. on the Ordinary capital, and taking note of the chairman's view that world trading conditions are not likely to be easy in the immediate future, I should regard the stock as being fully valued at the current market price. If, however, there were any foundation for last week's rumours that the P. & 0. might seek to acquire control of the company, the " break-up " value would clearly have an important bearing on the take-over price. So far as I am aware, no such deal is under consideration, but the disparity between the market price of the Ordinary stock and its potential " break- up " value illustrates the difficulty of ex- pressing an unequivocal opinion of the value of the stock. My own view is that the " break-up " value is the more important in the long run, but that the current earnings and dividend are more relevant in the short run. At 23s. 6d. Union-Castle yield more than 61 per cent., and in spite of the chair- man's remarks about the immediate out- look, I think the stock should be retained.
Standard Bank Pays More British banks operating abroad are cer- tainly less inhibited than the home banks are in their distribution policy. One reason may be that they cannot be accused of having profited to any significant extent from the rise in interest rates in this country. A case in point is the Standard Bank of South Africa, which has recently declared a final distribution of 71 per cent., making Ili per cent. for the year to March 31st, 1953, com- pared with 10 per cent. for the previous year. The distribution includes a bonus of 21 per cent., against 2 per cent. a year ago. Last July the £20 shares (£10 paid) were converted into £2 shares (£1 paid), and the uncalled amount can only be called up in (Continued On next page) FINANCE AND INVESTMENT—continued
the event of a liquidation—a contingency which seems to be exceedingly remote. The shares have lately improved to 34s. 6d., which is equivalent to about 33s. 9d. ex dividend. At this price they offer the attrac- tive yield for a bank share of 61 per cent.
Philip's Lamp Placing
A more fluid market in the 71 florin sub- share certificates of Philip's Incandescent Lamp Works (Holding Co.) should result from the recent placing in London of 500,000 certificates at about 23s. These are part of a block acquired by the Philip's group of Holland a few months ago from General Electric of America. The Dutch operating company owns about 30 factories in Europe and has affiliations and selling agencies throughout the world. Its products include lamps, electric fittings, X-ray tubes, meters, tungsten arc lamps, neon tubes and apparatus for television and talking films. It is reputed to hold a substantial interest in Mullard, which in recent years has made rapid progress in the field of electronics. At the time of writing the 1952 results have not been announced, but the dividend is unchanged at 12 per cent. The interim dividend of 6 per cent. resulted in a 10d. payment per certificate to U.K. holders, and on the basis of an annual dividend of Is. 8d. the certificates, now around 23s. 6d., yield over 7 per cent. I hesitate to recommend a purchase pending the issue of the full report, but the maintenance of the dividend and the fact that -sales in the first half of 1952 were 11 per cent. higher than in the first half of 1951 seem to be favourable auguries. Against this background and the recent placing it would be surprising if the results for 1952 were other than satisfactory.
Good Debenture Yields A good yield, with scope for appreciation in reasonably favourable conditions, can be obtained on Combined Egyptian Mills 51 per cent. Mortgage Income Debenture stock. This stock can be bought at about 841 to yield 6 guineas per cent., after allowing for all expenses of purchase. It has no fixed redemption date, but it can be repaid at par at any time on six months' notice, and a sink- ing fund of 1 per cent. (out of profits) oper- ates by purchases up to or drawings at par. The stock is secured by a second fixed and floating charge and ranks after a 31 per cent. First Mbrtgage Debenture stock. Com- bined interest on both stocks, plus sinking fund provision on the First Debentures, was covered more than 41 times by available earnings for the year to September 30th, 1952. In view of the asset and interest cover, the stock seems conservatively valued, and the price should improve on any fall in money rates.
A higher-than-average yield is also offered on Bowater Paper Corporation 51 per cent. Unsecured Loan Stock 1963-67. This is obtainable around 951—say, about 98 includ- ing brokerage and transfer stamp—to show a running yield of £5 12s. Od. per cent. and a yield to redemption of £5 14s. Od. per cent. Final redemption is at par in 1967, but the stock can be repaid at 101 from December, 1963. Annual interest on this stock and the prior charge is covered more than eight times by earnings. Although newsprint profits are subject at times to sharp fluctu- ations, the yield seems generous in relation to the cover.
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