FINANCE AND INVESTMENT By CUSTOS IT was not to be
expected that markets would maintain for long the exuberance with which they greeted the prospect of an early political show-down. After the first brisk raising of quotations—the result much more of jobbers' marking-up tactics than really substantial buying—more sober views have prevailed. Although the mood of investors is still one of cautious hopefulness, there is now a much wider recognition that the expected change of Government cannot bring any quick or decisive improvement in profits and dividends. A fairer deal for risk capital and an end of the dividend freeze, yes, but a general and spectacular increase in company dividends — most improbable. Already Excess Profits Tax- " in. some form "—has reared its ugly head In. the Conservative manifesto. While the proposed tax will doubtless be moderate and, it may be hoped, equitably applied, nobody in the City likes the idea. Experi- ence of E.P.T. has been far from satisfactory and the investor must feel that this propo- sition is just a political alternative to the removal of dividend limitation. He is left to rely on the Conservative promise to amend other forms of company taxation, but has no very strong conviction that such reliefs can be expected quickly. What of the market outlook ? Largely dependent, as I see it, on the election outcome but assuming a Conservative victory, quite pro- mising. Now, I think, is a good time for discriminating purchases of sound equities whose current dividends are well below available earnings.
British Celanese Capital
If one thing is becoming clear about the shape of financial affairs after the election, assuming a Conservative victory, it is that many of the large industrial companies will put through their new financing schemes on the time-honoured basis of issuing Ordinary shares as " rights " on attractive terms. That this is the intention of British Celanese is made abundantly clear in Mr. G. H. Whig- ham's annual statement accompanying the latest accounts. He now discloses that as far back as June application was made to the Capital Issues Committee for permission to raise approximately £3,500,000 to finance the construction of the company's new spin- ning plant at Wrexham. The board's plan was to issue Ordinary shares to the existing Ordinary stockholders, and Treasury con- sent was received. The whole plan fell to the ground, however, when in July Mr. Gaitskell announced the dividend freeze. The group's need for new money remains, of course, as great as ever and at the coming annual meeting on October 25th share- holders will be asked to approve the creation of 6,600,000 new Ordinary 10s. shares, which will bring up the total number of unissued 10s. Ordinaries at the board's disposal to 7,577,333. Mr. Whigham emphasises that the money for various capital projects will not be required all at once but "during the next few years." It is unlikely, therefore, that more than a part of the unissued shares will be issued at any one time. It is signifi- cant of the confidence felt in the market in the future of the British Celanese group
that this news has been followed by a rise in the price of the 10s. Ordinaries to 38s. 3d. At this level the yield on the 9 per just been rate, to which the dividend has been reduced to conform with the threatened statutory limitation, is under 2+ per cent. The explanation is the huge excess of earn- ings over dividends, which holds out the promise that if and when the freeze is brought to an end a payment much more in line with available net earnings will be quickly forthcoming.
GUS. Profits Surprise
Year after year the City pessimists have been forecasting some setback in the earn- ings of Great Universal Stores, the furniture and drapery group. Each year these dismal forecasts have been falsified in the event. Now come preliminary figures for the year to March 31st establishing a new profit record. So far from having fallen back or stood still, the group's trading profit has jumped by £2,264,237 to a peak of £8,161,150. Even after allowing for sub- stantially higher charges for taxation and depreciation net profit is up from £1,561,223 to £2,318,595. How much of this remarkable expansion is attributable to higher prices and how much to a growth in the volume of turnover is not yet revealed, but it must be assumed that both have played their part and that, so far as volume is concerned, much of the increase has been the direct result of the expansion policy pursued by the company's dynamic chairman, Mr. Isaac Wolfson, in recent years. • What may now be disconcerting to Ordinary shareholders is Mr. Wolfson's ultra-conservative policy in relation to dividends. Once again, in spite of the spectacular rise in profits, he merely maintains the Ordinary rate at 40 per cent, and gives no indication as to whether or not he would have been prepared to pay more but for the dividend freeze. Allocations to reserves have been increased from £637,908 to £733,685, and the balance carried for- ward is raised by over £1 million to the mouth-watering sum of £2,380,602. Nor is this all. Accompanying the latest profit figures is an intimation that Mr. Wolfson is carrying his expansion projects beyond the domestic field into the dollar area. Some shareholders may now be wondering when expansion is to end and consolidation to begin. Meantime, the 5s. Ordinary shares have moved up on the strength of the latest figures from 30s. 3d. to 31s. 6d. At this price they yield just over 6 per cent, on a dividend covered by a very handsome margin. Although I regard the shares as a speculation, I do not think they are over- valued.
Platers and Stampers
-In the middle of June I called attention to the merits of the 5s. Ordinary shares of Platers and Stampers, a British subsidiary of Ekco Products, of Chicago,, who are the largest Arnerican manufacturers of small kitchen utensils. The shares were then standing around 37s. 3d., yielding nearly 5i per cent, on a well covered dividend. I ' suggested that in view of the expansion possibilities of the company the shares should prove a progressive holding. Con- firmation now comes in a circular from tha board proposing a 100 per cent. scrip bonus. The plan is to capitalise £260,000 of share premiums and reserves and distribute one new 5s. share for every share held, the object being to bring the issued Ordinary share capital, which is at present only £260,000, into closer relationship with the value of the assets employed. At the same time, the directors announce their intention to issue 500,000 5 per cent. Cumulative £1 Preference shares to the Ordinary shareholders on terms to be settled at the date of issue. Doubtless the price will be fixed so as to make the shares an attractive proposition. This new money is required to finance increasing turn- over and further expansion plans. Here, it seems to me, is ample evidence that the com- pany is steadily forging ahead, and were it not for the dividend freeze one could safely forecast that the Ordinary dividend, which last year was raised from 35 per cent. to 40 per cent., would be stepped up by gradual. stages. As things are, the maximum per- mitted rate on the doubled Ordinary capital after the bonus shares have been distributed will be 18+ per cent. The 5s. shares have moved up in recent months by a few .shil- lings and now stand at 41s. 3d., indicating an ex-bonus level of 20s. 7-1-cl. The return on an 181 per cent, dividend would thus be about 41 per cent.—a satisfactory yield, having regard to the large margin of earn- ings and the company's potentialities.
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