FINANCE AND INVESTMENT
By CUSTOS
IF investors are in any need of a reminder that these are odd markets, let them consider the recent behaviour of gilt-edged prices. Before the pound was devalued the City was convinced that any scaling-down of the value of the currency would bring a fresh fall in gilt-edged stocks. What has happened ? After a momentary shudder the gilt-edged market has made a steady recovery and now, three weeks after a 3o per cent. devaluation, stands higher than on September 16th. I must emphasise that this recovery has not been due in any sense to official support. The market has wisely been allowed to find its own level, and solid investment demand made for higher prices. The explanation is partly, of course, that in the weeks preceding devaluation gilt-edged suffered a major reverse. To some extent, therefore, the writing down of the pound had been discounted in advance. Another factor helpful to gilt-edged has undoubtedly been the choice of $2.8o as the new exchange rate. Such a low rate is an under-valuation of the pound, unless the Government fails to hold in check the threatened rise in internal costs and prices. The effect is therefore to foster the view, not merely here but abroad, that a further devaluation should be unnecessary and by the same token to induce a reflow of foreign money to this country. How much foreign buying of gilt-edged there has been since September 18th it is difficult to gauge, but all the evidence suggests that it has been far from negligible. Does this mean that gilt-edged may now recover all the ground lost in the middle of the year ? I doubt it. The dollar gap is not yet closed and the pressure of demand on available investment resources is still very strong.
GOLD SHARE ACTIVITY
As the most obvious beneficiaries of devaluation, gold shares, whose merits have been consistently underlined in these notes since the early summer, are now coming into their own. What the higher gold prices can mean to the producing- company has been strikingly demonstrated in the September returns. One has only to look at the profits of such mines as Randfontein and Blyvoor to see at a glance that the earnings outlook has been revolutionised, even if one makes a liberal allowance, as one should, for the prospective increase in working costs and the heavier calls of taxation. From now on the Kaffir market is bound to be selective, but at the moment I would not advise selling. It may well be that other groups, such as West Africans and West Australians, will take up the running. Ariston, at los. and Bremang, around 5s. 6d., look attrac- tive in the West African market, and Wiluna, 9s., and Gold Mine: of Kalgoorlie, 52s. 6d., in the Australian groUp. Other shares which ought to have a chance, in the new conditions, are New Guinea Goldfields, which are of 4s. 3d. denomination, at 2s. 41d. and Camp Bird los. shares at 14s. Cavil) Bird is a finance company with a large portfolio of gold and base metal shares which must have risen substantially in value—and provided the. opportunity for profitable share dealings—in the last few weeks. M the company has paid a to per cent. dividend—well covered by earnings of over 27 per cent. for each of the past three years, the buyer gets the useful income yield of over 7 per cent.
A CHEAP INDUSTRIAL
It is not often that one can buy a share at not much more than one-half its asset value and at the same time obtain a reasonable yield. This attraction is now held out by the 5s. Ordinaries of John Hetherington (Holdings) at the present price of 3s. The company is a holding concern, as its name implies, its principal assets being 30,500 Li 5 per cent. cumulative Preference shares and 30,500 £t Ordinary units in Textile Machinery Makers, the large company to which its operating assets were transferred in 1931, plus about ,C50,000 in gilt edged. With the 5 per cent. Preference dividend in Texile Machinery Makers covered several times over and the Ordinary units in T.M.M. paying 6 per cent. out of earnings of over 3o per cent. I think a valuation of Hetherington's investments in this concern at par, viz. L61,000, is *conservative. Add the gilt-edged holding and you have the total of about Li io,000 against Hetherington's issued capital of £121,239, or over 4s. 6c1. on the 5s. shares. That is ignoring certain trade investments and othet assets valued in the balance-sheet at over £18,000, or another 8d. a share. Out of their investment revenue Hetherington's pay a dividend of 31 per cent., so that the yield at 3s. is just over 5 Per cent. It seems to me that these shares are under-valued at the present price.
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