AUSTIN MOTOR BONUS
It is evident from the preliminary figures of the Austin Motor Company that until the outbreak of war this under- taking was well set for a new high record of earnings. For the year ended July 31st, 1939, trading profits rose sharply from £1,282,828 to £1,609,580, or within £56,000 of the record reached two years ago. Maintenance and deprecia- tion reserve allocations have been substantially increased at £893,360, against £674,170, so that net profit is roughly £107,500 up at £716,220. As contingencies reserve receives £60,000 more at £105,000 and £300,000, against £175,000, is taken for income tax and N.D.C., it is apparent that the net balance available for dividends is considerably reduced. In relation to Austin's very highly-geared ordinary capital this means that the reduction in earnings per share is quite sharp. Accordingly, the board is cutting down the cash distribution on the ordinary and "A" ordinary shares from 3o per cent. to 15 per cent.
This, however, is only half the story. Subject to Treasury sanction being obtained, it is proposed to supplement the 15 per cent. cash dividend with a 4 per cent. scrip bonus, in other words to capitalise some £25,000 of reserves. This plan seems to me to be not only in accordance with the spirit of the Treasury's control of the capital market, since it conserves the company's cash resources and does not involve the raising of any fresh capital, but also fully justified by the earnings position. The board has doubtless formed a pretty accurate estimate of earnings in the new conditions created by war and, one imagines, is hopeful of being able to maintain a 15 per cent. dividend on a slightly enlarged ordinary capital. In its first fit of excitement following the cut in the cash dividend the market put Austin 5s. ordinaries down from 16s. 9d. to 13s. 9d. but there has been a quick recovery to 15s. At this price the yield is 5 per cent. without allowing for the scrip bonus. If we value the bonus shares and assume that they can be sold in the market for 15s. the dividend is brought up to about 33 per cent., and the yield to II per cent. Austin ordinaries should be well worth holding.
(Continued on Page 664)
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