FINANCE AND INVESTMENT
By CUSTOS
IN their touchy condition markets are no longer able to stand up ta bad news, and how else, but bad could one describe the tidings from the economic front this week? Stoppages in the coal fields, dis- appointing figures of coal stocks, difficulties in the export market.., to say nothing of the continual whisperings of an autumn Budget. As so often happens when the bottom falls out of the market, the falls in quotations are not very logical, the good shares suffering equally with the bad. Indeed, leading industrials are often sold for the very reason that they will fetch a reasonable price, while other less readily marketable but intrinsically less desirable holdings are retained. How far will the fall go ? It is hard to say now that the mood of the market has changed from optimism to pessimism and the rush to sell has gathered momentum. Much will now turn on developments on the coal front, the speed with which American aid for Europe is forthcpming, and Mr. Dalton's action in the financial field. At present,Mie situation still has inflationary possibilities, although the psychological element in inflation which turns spend- ing power into actual spending seems to me to have already received a nasty blow. I doubt whether the lowest prices in the stock markets have yet been reached.
MEXICAN EAGLE SETTLEMENT
Shareholders inothe Mexican Eagle Oil Company, long accustomed to alternate hopes and fears, will welcome this week's ann9unce- ment of what looks .like a firm settlement of the long-outstanding compensation question._ Although the full terms have not yet been published, an official statement makes it clear that the Mexican Government has reached agreement with representatives of the com- pany to make a payment of 81,25o,000 American dollars, plus 3 per cent. annual interest from the expropriation date in 1938. That in itself seems a satisfactory indemnity and would have aroused enthu- siasm among investors on this side if it had not been for the long period of is years over which payment is to be spread. According to the official statement, payment is to be effected in New York in fifteen equal annual instalments of 8,689,257 American dollars on September r8th in each of the years 1948 to 1962, inclusive. These payments include interest on the outstanding balances from Septem- ber t8th, 1948, to September t8th, 1962.
In assessing the implications for Mexican Eagle shareholders one needs to know the answer to three questions. First, is it the inten- tion of the compilty to proceed to a voluntary liquidation and dis- tribute the compensation money as and when it is received ? Second, what is the break-up value of the shares under the compensation terms . Third, what is the present value of a payment from the Mexican Government which is to be „spread over fifteen years ? Any uncertainty surrounding the future policy of the company can be removed only by the Mexican Eagle board. Here one feels that the directors will wish to know whether it is the intention of the Mexican Government to invite the company to resume operations, and if so, on what terms. In view of the difficulties in which the Mexican oil • industry has been involved in recent years, it is believed in some quarters that the co-operation of British and American capital and technical skill may-again be invited in the near future. In that event substantial sums would be required for re-equipment purposes, and the Company would doubtless employ much, if not all, of the com- pensation money for capital purposes as a going concern.
BREAK-UP ESTIMATES
As to the break-up value of the shares, which would only be really relevant on the assumption of liquidation, City estimates have varied widely. In conservative quarters a price of between 27s. and 30s. for the 8 per cent. Participating Preference shares and the Ordinary shares has been suggested. More optimistic estimates have put the figure between 405. and 45s. This latter calculation is based on a total compensation payment, including interest, of about £32,000,000. Deducting from that the £500,000 which would be due to the Canadian Eagle Company in repayment of Preference dividends met under itip guarantee and adding in about £2,000,000 for surplus liquid assets of the Mexican company, there would be £33,500,000 applic- able to a combined total of just under 15,ono,000 Preference and Ordinary shares. As these rank pan i passu for repayment of capital there would be nearly 45s. a share. That calculation may be over- optimistic, but if it is anywhere near the mark it suggests that at the current price of around 18s. 6d. Mexican Eagle shares should be worth holding.
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