7 SEPTEMBER 1951, Page 30



IN face of the threatening balance of pay- ments problem, to say nothing of the difficulties looming up on the fuel and power and transport fronts, markets are holding remarkably well in the holiday season. While there is no expansion of turnover, there is just enough interest on the buying side to keep prices firm, and here and there—as in Canadian stocks and foreign bonds—activity springs up at sharply rising prices. This behaviour of markets suggests that the majority of investors are still inflation-conscious and, in spite of dividend limitation, have not lost faith in equity shares as an inflation " hedge." Behind this view is, of course, the widespread conviction that an election is in early prospect and an equally wide- spread hope that it will result in a change of Government. Already, as I interpret current prices and yields of industrial ordinary shares, a Conservative victory is being partially discounted in advance of the event. One must therefore be prepared for a comparatively modest response to such a victory if and when it comes. Meantime, however, the indications are that when the holiday season ends political hopes will maintain and probably extend the present recovery in markets.

Odeon Group's Recovery

Although the City had been prepared for some recovery in the fortunes of Mr. I. Arthur Rank's Odeon group of com- panies, the improvement recorded in the preliminary figures for the year to June 23rd is in excess of most expectations. The rise from £3,293,426 to £5,125,2i0 in the trading profits of Odeon Thugs, which may be regarded as the key effinpfihy of the group, is certainly impressiye. $o, too, is the increase in the trading protts of Gaumont- British, another imporant subsidiary, from £1,794,720 to £2,852,264. The sharp contrast with the experience of the previous year is underlined in the net figures, struck after charging substantial sums for depreciation and making large provisions for taxation. In the case of Odeon Theatres there is a profit of £138,237, which compares with the previous year's loss of £1,095,626. Gaumont- British shows a net profit of £426,920, against a loss of £71,232. As it may be assumed that gross earnings on the cinema side of the business were not materially changed, the inference to be drawn is that the improve- meat is attributable mainly to the policy of retrenchment, especially in the field of film production, initiated by the group over a year ago. Another contributor to the improvement in earnings has doubtless been administrative economy.

Powell Duffryn Merits Although there is nothing very exciting in the latest results announced by Powell Duffryn, this should not be allowed to conceal the merits of this company's £1 ordinary units as •a long-term industrial - investment. For the year to March 31st the group's net profit is slightly lower at £604,934, against £647,073, and has been struck after crediting £72,452, against £66,248, from taxation reserves. If one allows, however, for the fact that £310,516, against £232,661, has been charged for depreciation, and £1,041,460, against £934,676, for taxation, it is easy to see that the group's gross earnings have shown a modest increase. With a final of 5 per cent., the total distribution on the ordinary stock is again being brought up to 8 per cent., and this payment is covered by a moderate margin of earnings. All these figures have little relevance to the group's longer-term potentialities, which are bound up with the substantial interests, still in the early development stage, acquired in recent years in the oil industry. Much also depends on the compensation which the company ultimately receives for its large colliery interests vested in the National Coal Board, although the chances of any substantial cash repayment should not be put very high in view of the group's growing capital commit- ments. Quoted around 34s. to yield just over 44- per cent on the 8 per cent. dividend, Powell Duffryn £1 ordinary units are well worth locking away.

Market Reactions

In the market these results have been well received and have led to a moderate recovery in the quotations of most of the securities in the Odeon. group. Odeon Theatres 6 per cent. £1 preference shares, with one year's arrears still to be cleared off, have risen from 12s. to 13s. 9d. 'They seem to me to have scope for a further modest and gradual improvement. They are certainly cheap by comparison with the 5s. ordinary shares which, not yet in sight of a dividend, are quoted at 12s. 6d. The preferences of some of the associated companies, such as Odeon Properties, whose 4+ per cent. £1 cumulative preferences are quoted at 12s. 6d., look reasonably good value for money. The 3+ per cent. first mortgage debenture stock of the pr?perty company, well covered both as to cdpital and interest, also looks a good purchase around £78 per £100 nominal stock. It is, in fact, among the debentures where I think the most promising purchases can be made now that the group's finances, badly strained two years ago, have been improved. Odeon Associated, engaged on the cinema side, has a 34- per cent. first mortgage debenture stock quoted around £63 to yield over 5 per cent., and a 31 per cent. sgyond debenture around the same price, giving a return of over 6 per cent. The prospect of repayment at par over the next 20 to-30 years enhances the attractions of these debenture stocks as long-term investments.

Good Offer for Maypole Among the City's well-kept secrets has been the offer now announced for the 2s. deferred ordinary shares of the Maypole Dairy Company. The terms, judged by reference either to recent market quotations or by dividend potentialities, look to me decidedly attractive, and I have little doubt that the offer will meet with a ready response. Home and Colonial Stores who, like Maypole Dairy, are an important unit

in the retail organisation of the Lkver and Unilever group, already hold just under 20 per cent. of Maypole's deferred ordinary capital. The terms on which they are now proposing to acquire the substantial balance of Maypole deferred held by the general investing public are one-quarter of a Home and Colonial ordinary share, plus 3d. in cash. With Home and Colonial ordinaries standing in the market around 7s. 9d., this adds up to just under 2s. 3d., which compares with a market quotation of Is. 74d. for Maypole 2s. deferred shares just before the offer terms were announced. An important point, which the Home and Colonial directors rightly emphasise, is that if the main features of the White Paper on Control of Dividends are embodied in legislation the maximum rate payable on Maypole deferred during any period of control would be 5 per cent., as against 101 per cent. on the ordinary shares of Home and Colonial. It is also pointed out that but for any such legislation and given a continuance of present trading conditions, Home and Colonial would be in a position at least to maintain the current dividend rate of 12 per cent. Already the two companies work in close co-operation, but apparently it is felt that by a more complete identity of financial interests this collaboration can be extended further, with resultant economies in opera- tion, without sacrificing the individuality of the two companies. It is obvious that holders of Maypole deferred shares who accept this offer will be exchanging into an investment based on the earnings of a large combination of companies having more varied; although integrated, trading interests. There should be a gain in stability as to income and as to security of capital.

Rising Copper Profits -

From the latest figures announced by two of the large Northern Rhodesian copper mines—Roan Antelope and Mufulira—it is clear that copper producers are passing through unusually prosperous times. For the year to June 30th profits, before taxa- tion, of Mufulira Copper reached £8,198,000, against £4,185,000- for the preceding year. Roan Antelope profit, before tax, has risen from £2,432,000 to £6,275,000. The latest figures have been arrived at after allowing for replacement and obsolescence provisions amounting to £700,000 for Mufulira and £900,000 for Roan—provisions which are at the same rate as for the previous year but which are subject to revision when the full accounts are considered. Taking the figures for the most recent quarter, these indicate -even higher rates of earnings, and the peak may well lie ahead, bearing in mind that several of the Rhodesian copper enterprises have not yet completed major extension schemes. Unfortunately, the outlook for shareholders is now badly clouded by the threatened dividend freeze. If dividend control becomes law and the mining com- panies with their wasting assets fail to secure any special dispensation, the benefits of high profits to copper shareholders must be essentially long-term. Meantime, however, the financial position of the various com- panies, already strong, will be made well nigh impregnable through the enforced huge allocations to reserves. With the statistical position of the metal still healthy, I do not advise conner shareholders to sell: