FINANCE AND INVESTMENT
By CUSTOS
Two developments, neither of great significance in relation to the underlying trend, but both of interest to large groups of investors, have pulled markets out of the rut this week. One has been the start of dealings in home railway securities on a basis which makes them directly comparable with the British Transport Stock for which they will be exchanged under the Government's nationalisa- tion scheme on January ist. Under the arrangements prescribed by the Stock Exchange authorities dealings in home rails are now on an ex dividend and an ex stamp duty basis. This means that any dividends declared by the railway companies in respect of the current half-year on the senior stocks and the final payments expected about next March on the junior securities belong to the seller and not to the buyer. In the case of the senior home rail stocks the net amount of dividend is readily calculable since the interest rates are fixed. There is some uncertainty, however, surrounding the dividend rates likely to be paid on the junior stocks. All that can be said at this stage is that payments in most instances will exceed those of recent years through the inclusion of sweepings.
It could not be expected that at this stage the Treasury would be able to disclose the terms of the new stock to be issued to home rail investors on January ist. To judge from the present condition of the gilt-edged market, the most appropriate terms would be a 3 per cent, long-dated stock at a point or so under par. If Sir Stafford Cripps has the courage to face up to this position he will have a fair chance of solving the gilt-edged market's most pressing problem, since there can be little doubt that, offered on those terms, the new Transport Stock would command genuine investment sup- port. My advice to home rail investors is not to sell at present prices, but to see things through.
" SHELL " NEW SHARES
The other feature of outstanding market interest this week has been the quotation of " Shell " Transport Ordinary shares in their ex rights form. When the large-scale financing operation of the " Shell " company, involving nearly L3o,000,000 of new money, was announced three weeks ago few people would have suspected that the price of the Ordinary shares would have improved. There has, in fact, been a rise of about 7s. 6d., a most unusual reaction to the news of a heavy offer of this kind. What has happened is that investors have been impressed by the strength of the position dis- closed in the " Shell" circular and also by the accumulating evidence in the shape of further rises in crude oil prices in the United States of the promising prospect of the oil industry as a whole. Share- holders in " Shell " Transport should certainly do their utmost to increase their stake in the company by taking up their quota of new Ordinary shares, and as a long-term investment the new shares can be confidently recommended for inclusion in any portfolio.
A COLLIERY PREFERENCE
Over two years ago I outlined the merits of the Li Preference shares of Amalgamated Anthracite Collieries when the market quota- tion was around 8s. 3d. Although in the meantime the price has nearly doubled—a buyer today has to give 15s. 6d.—I still see no reason why holders should sell. On the contrary, the shares are good value for money and should improve further over the next few years. The position disclosed in the latest report covering the year to December 31, 1946, is decidedly encouraging. Trading profits show a substantial increase, and the directors would have been well able to clear off the remaining arrears on the Preference capital but for the tightness of the company's finances. Over Li,000,000 is owed to the company by the Coal Board for stocks and materials taken over on January I, 1947, but so far no pay- ments have been made. When this matter is settled it is the board's intention to eliminate the three years' arrears, amounting in all to iof per cent., or over is. net per share, so that on an ex dividend basis a buyer would be paying 14s. 6d. for the Li shares. So far as can be judged, the compensation payable to the company for its colliery assets is likely to cover the Preference capital by a substan- tial margin. Meanwhile, activities of the various subsidiaries and new development plans put in hand are bringing in a reasonable return which should enable the company to maintain the 3f per cent, cumulative dividend on the Preference shares in the coming years. By virtue of their participation rights, which should entitle them to generous treatment if and when a capital reorganisation scheme is put through, these Preferences should gradually improve.
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