FINANCE AND INVESTMENT
By CUSTOS MARKET observers are still perplexed by the conflict of economic portents and indices, particularly in America. Total U.S. pro- duction is now about 10 per cent. higher than a year ago and 140 per cent. above the 1935-39 average ; there are 1,600,000 more people at work than at this time last year ; automobile output is currently running at an annual output rate of 7,000,000 cars ; retail trade is active ; and so on. Yet commodity prices droop, and Wall Street has weakened. Normally the stock and com- modity markets are more sensitive indices than are the figures of output, trade and employment, which often remain high after order books have begun to shrink. My impression is that Le recent falls in Wall Street and commodities simply reflect an intuitive and tentative assessment of the future arising from the prospect of a truce in Korea. If the hopes of peace are dis- appointed or if hostilities in Indo-China should be intensified, then the markets would rally. For some time, London seemed to be immune from the pessimism of Wall Street, but industrial equities came under its influence towards the middle of the week. Gilt-edged, however, remain firm, and the continued strength of this market seems to carry official approval, if not sustenance. At the moment market prediction is little more than guesswork, and views fluctuate with events from hour to hour. It will, I think, be time to worry when, if ever, America revives the 1929 slogan : " Busi- ness is good ; keep it good."
Royal Dutch-Shell Millions Statistics culled from the consolidated statement of the Royal Dutch-Shell Group for 1952 vie in magnitude with the Budget and trade figures of a good-sized state. Total sales in 1952 rose by £191,000,000 to £1,617,000,000 • taxes on products and income absorbed £38,000,000 more at £402,000,000 ; and capital expenditure was £24,000,000 higher at £188,000,000 Net income rose £5,251,000 to £125,605,000, of which nearly £103,000,000 was retained in the business ' • while the group balance-sheet shows a rise of £120,000,000 to £1,018,000,000 in net assets. The group fully maintained its position in world markets last year. World consumption of oil rose by some 7 per cent., but the Dutch-Shell group sold 11 per cent. more in volume than in 1951. Of particular interest is the news that the group's refinery output of aviation petrol was 60 per cent. higher than in 1951. ,A further increase is expected this year. In his comments on the outlook, Sir Frederick Godber, the Shell Chairman, says that the industry has entered a period of growing competition, which may be looked upon as a return to normal conditions, and he does not seem unduly perturbed by the drop in tanker freight rates. If world conditions permit a normal expansion in consumption of petroleum products—which, incidentally, now include solvents, resins, detergents, fertilisers and sulphuric acid—he thinks " there should not, taking a long view, be any reason for anxiety about the position over the next few years." I may add that, taking a long view, there should be no reason for anxiety about an investment in Shell Ordinary at the current price of 85s. to yield £6 7s. per cent. on a dividend covered six times by' earnings.
Good Paint Distribution International Paints (Holdings) did well to maintain its gross and net profits for 1952 at nearly the same levels as in 1951, since 1952 was a poor year for most domestic paint manufacturers: Group net profit attributable to the controlling company was about £43,000 lower at £528,731, and the dividend on the Ordinary shares for the year was brought up to 20 per cent. This com- pared with 26 per cent. for 1951, but since then there has been a free share bonus of one-for-two, so that the latest payment is equal to 30 per cent. on the pre-bonus capital. Sales in the home market suffered, but the group was helped by its diversifica- tion of interests, notably in the marine division, where a record tonnage of shipping was painted or otherwise protected. To provide householders with a wide range of choice of shades the company is introducing " Solectatint," a new tube tinting process. The Ordinary dividend is covered three times by available profits, and the 4s. shares, standing at 13s. 6d., offer a yield of £5 18s. per cent. International Paints has a good record, and its interests are spread over a wide geographical field. I think these shares are good value at this price.
Silver Line Dividend In the tramp shipping share market Silver Line 10s. Ordinaries have maintained a firm front in recent months around 19s., a level only a little below this year's high point of 21s. 3d. This quotation proves to be justified by the results now announced for 1952. Although net profit at £585,913, after tax, shows a fairly substantial fall from thd 1951 peak level of £701,942, it still covers the 10 per cent. Ordinary dividend with an ample margin to spare. Moreover, it is augmented once again by a 10 per cent. special distribution paid free of tax out of capital reserves. In his statement Mr. Henry Barraclough emphasises that the working results for 1952 were better than might have been expected from the fall in tramp freight rates, mainly because several of the com- pany's ships were fixed on long-term charter when rates were exceptionally favourable. This special factor will continue to operate, though on a modified scale, in 1953. On the other hand, Mr. Barraclough informs stockholders that the company's tax burden may be heavier this year, now that the losses carried forward from previous years have been exhausted. Latterly there have been indications that tramp freight rates, after their heavy fall, have achieved some degree of stability. Although I would not recom- mend Silver Line shares at the present time for capital appreciation, they look reasonably valued in relation to the dividend yield, the strong assets position and the quality of the management.
B.I. Cables Prosperity . After setting aside £4,882,000 for tax and allowing for minority interests, net profits- of British Insulated Callender's Cables for 1952 are £538,000 higher at £3,023,778, and for the third year in succes- sion the distribution on the Ordinary stock is
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FINANCE AND INVESTMENT—continued
raised—this time from 9 to 10 per cent., including a 21 per cent. cash bonus. The payment is covered 4.4 times by earnings, and the £1 Ordinary, now around 36s., show a well-covered yield of £5 Ils. per cent. By normal standards the stock would clearly be attractive, but Sir Alexander Roger, the chairman, points out that the sellers' market changed to a buyers' market some months ago ; that competition, especially in over- seas markets, is now particularly keen ; and that the intake of new orders has fallen substantially. The main cause of lack of confidence in the immediate future is uncer- tainty about prices of raw materials, particu- larly copper, which has led many customers to use up existing stocks. The group accounts show stocks and work in progress at £21,293,002, which is about £1,000,000 lower than at the end of 1951. This may seem large, but it is not unduly so in relation to the B.I.C.C. group's turnover of £85,000,000 in 1952. While conditions in 1953 are unlikely to be as good as in the record year of 1952, there is a stout buttress against adversity in the £11,300,000 of revenue reserves and surplus. Given stability of raw material prices, the prosperity of B.I. Cables would be assured, and in spite of the Chair- man's warning the Ordinary stock seems to be a sound long-term investment.
London Electric Wire Results Good results are also shown for the past year by London Electric Wire Co. and Smiths, whose numerous products include copper and alloy wires, transmission lines, telegraph wires, radio aerials and insulated cables. Trading profits show a substantial Increase, but the tax provision, at £796,530, takes £100,000 more, leaving the net profit £10,000 down at £510,580. The distribution on the Ordinary Stock is raised by 21 per cent. to 15 per cent., which includes a 5 per cent. Coronation bonus. This is the second rise since 1950, when 10 per cent. was paid. The present payment is covered six times by earnings, and on the 15 per cent. basis the £1 Ordinary, now quoted at 55s., yield £5 9s. per cent. A very strong position is shown in the group accounts, with cash, investments and debtors totalling more than £4,000,000. On the balance-sheet figures, which show fixed assets at a low valuation, the net asset value of the £1 Ordinary units is over £5.
Head, Wrightson Strength
Having called attention on one or two occasions to the investment merits of the £1 Ordinary shares of Head, Wrightson & Co., the Stockton-on-Tees firm of engineers, I feel justified in bringing the position up-to- date, in the light of the results just disclosed for the nine months to January 31st, 1953. Group trading profits' are reported at £658,000, against £649,000 for the preceding twelve months. It is pointed out, however, that the latest figures include a full year's profits from the Subsidiary company but in- clude only nine months' profits from the parent concern. It is obvious that the annual rate of profit for the group, as a whole, was substantially above £658,000. On the strength of these figures the directors have raised the dividend from 121 per cent. to 171 per cent., and the £1 shares have improved a few shillings to 56s. Even at this level they seem attractive, for the dividend is covered more than four times, and the yield is 61 per cent.
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