FINANCE AND INVESTMENT
By CUSTOS Arita their late summer recovery markets appear to have entered an autumn phase of consolidation. Although there is no evidence of any real anxiety to sell, buying has become less insistent and more selective. Prices are thus showing little change, on balance, apart from the securities, such as German and Japanese bonds, affected by specific developments. Is this a pause before a fresh advance or must we look for another spell of falling quotations ? I lean to the more hopeful view, but must emphasise that the market recovery is still a very tender plant. The new-found hopefulness among investors could easily be destroyed by adverse news from the wages-front or by any further deterioration in the export trade figures. Reasonably good news from these sectors, on the other hand, would readily bring in fresh buying of gilt-edged and leading equity stocks.
British Lion Studios Like Mr. Rank's Odeon group, Mr. Harold Drayton's British Lion undertaking now seems to be moving slowly into less disturbed waters, At least that is the im- pression one gets from the accounts cover- ing the year to March 31st of the British Lion Studio Company. The results of the British Lion Film Corporation, the produc- ing unit in the group, may be expected within the next two or three weeks. There is evidence in the Studio Company's figures of the benefits of reorganisation and ener- getic management. Trading profits have risen from £158,998 to £187,330 and net profits, after depreciation, loan interest, etc., are shown at £55,330, a figure which compares with a loss for the preceding year of £11,806. Preference dividends are being brought up to date by the payment of two years' dividends and Ordinary distributions are resumed with 15 per cent. Those results in themselves will be encouraging to the shareholders, but the financial position is also being strengthened. In his statement Mr. Drayton discloses that since the end of the financial year the company has sold its freehold land and buildings at Isleworth for £16f,000. Of this sum about £60,000 is to be used to alter and enlarge the main studios at Shepperton, the object being to provide more varied facilities and give these studios an earning capacity equal to that previously possessed by both studios com- bined. The balance of just over £100,000 of the proceeds of the Isleworth sale is being kept on deposit, as required by the Trust Deed which secures the company's Deben- tures. Following these results the £1 6 per cent. Cumulative Participating Preference units have been marked up from a nominal level around 5s. to 8s. 9d. They still look undervalued. The 2s. Ordinary shares at 2s. 3d. are a much more speculative holding and, despite the high yield, look high enough for the present.
Sheepbridge Expansion Among the companies which, after nation- alisation of part of their assets, have gone rapidly ahead in new directions is Sheep- bridge Engineering. Compensation money from colliery assets has been applied in acquiring additional businesses, and with its engineering products in good demand group profit for the year to March 31st shows a sharp increase from £653,000 to £1,114,000, an expansion of over 70 per cent. Participating Preference and Ordinary share- holders received a three-for-two scrip bonus earlier this year, and if one allows for this capitalisation the distribution now recom- mended is equivalent to abotit 9 per cent. tax free on the larger capital. This was covered about lf times over by net earnings, which, after tax, have risen from £304,000 to £372,000. The group still has impres- sively large reserves and a strong liquid position. At 12s. 3d. the 5s. Ordinary shares offer the generous yield of about 7 per cent. gross.
Atkinson Lorries Having recommended the 2s. ordinary shares of Atkinson Lorries a year ago I think there is good reason to be satisfied at the results now shown for the year to March 31st. Group trading profit has risen from £99,000 to £118,000 and the dividend is comfortably maintained at 33f per cent. Although the group stands to be hit by Excess Profits Levy, the cover behind the dividend is so ample that, assuming that trade, especially in the important export markets, can be held at last year's levels, there should be no question of any dividend cut. In his statement the chairman empha- sises the need for holding down costs, since any further -increase in selling prices will only invite still keener foreign competition. The 2s. Ordinary shares are now quoted at 6s., yielding just' over 11 per cent. This high return is itself a reflection of the risks involved in the equity of a company engaged in keenly competitive markets. The com- pany enjoys alert management, however, and the shares should pay to hold.
Burberrys' Problems Acute disappointment is bound to be felt by shareholders in Burberrys, the water- proof and clothing manufacturers and retailers, at the results now disclosed for the year to March 31st. Whereas in the previous year this company, whose financial fortunes have fluctuated considerably, was able to -- bring its Preference dividend up to date and to resume Ordinary payments with 5 per cent., it now finds itself compelled to omit any Preference dividend, and naturally there can be nothing for the Ordinary share- holders. Although the value of sales increased by 3 per cent. and the group's foreign trade accounted for one-half of the total turnover, net profit, before charging tax, has fallen from £371,254 to £53,692. Accompanying the preliminary statement is the directors' explanation that to maintain turnover profit margins were reduced both for home and export business, but that the probable cause of the sharp setback in trading profits was the need to write down stocks to £223,849. Before making this provision stock-in-trade amounted at March 31st to £1,392,490, an increase of 55 per cent. on the year. The board did its best to avoid piling up stocks. at the top prices but this substantial increase was apparently essential to the maintenance of the group's business and the fulfilment of its normal role in the trade. There can be no surprise, in the light of these results, that resources are being conserved, especially as the balance-sheet shows bank overdraft at £433,538 and a reduction in cash by £144,665, a total deterioration in the liquid position of £578,203. This was attributable as to £495,636 to the mcrease in stocks and as to £81,520 to the purchase of fixed assets. Burberry's £1 Preference units are now down to 10s. 6d. and the Ordinary £1 units to 5s. They must both be regarded as speculative holdings, but at these levels they should have recovery chances.
Coast Lines' Recovery Like most shipping companies, Coast Lines have achieved a substantial improve- pent in earnings in 1951. Combined profits of the group rose last year by over 30 per cent. to £1,368,000, before tax. To quote Capt. A. R. S. Nutting, the Coast Lines chairman : " Voyage earnings on the whole showed a substantial improvement but expenses continued to rise throughout the year, particularly oil fuel and repairs." Taxation has laid a heavy hand on, the gross earnings, but after tax the net profit was £37,000 higher at £467,000, including certain capital gains. It i§ clear from the report that the group has substantial capital com- mitments for new tonnage, but it also emerges that the liquid position has been greatly strengthened. Bank overdraft at £505,000 was liquidated during the year and cash, tax certificates, etc., appear at £1,136,000, against £642,000. In the current year this company, which operates coast- wise and Continental services, must have shared in the general experience of lower freight carryings, but passenger traffic has been encouraging. On the strength of last year's results the board has done no more than justice to the Ordinary shareholders in raising the dividend rate from 5 per cent. to 61 per cent.—a payment which is shown to have been covered about five times by the group's net available earnings. The £1 Ordinary units are quoted in the market around 14s. 9d., yielding just under 9 per cent. In present conditions I regard them as fairly valued.
A Recovery Share Reports from most sections of the textile trade now point to a slow recovery from the low levels touched in the early months of this year. Among those which were badly hit by the fall in prices and the resurgence of competition were the principal carpet manu- facturers. I now hear that the carpet trade has substantially improved and that the outlook is being viewed with greater confi- dence than for several months past. Carpet shares, like cotton textile shares, are quoted well below last year's best levels and in my view they have considerable scope for recovery. The £1 Ordinaries of John Crossley and Sons, the old-established carpet makers of Halifax, look as attractive as any from this standpoint. They are quoted around 33s. 9d., against last year's top price of 64s. 3d., 1950's best level of 58s. and 67s. touched in 1949. In each of the past five years the dividend has been 20 per cent., and although the directors pointed out in June that trading profits had been materially reduced by the fall in stock values and reduced sales the interim on account of the year ending December 1st, 1952, was maintained at 21 per cent. Even if the total distribution were to be halved at 10 per cent. the shares would still be offering the useful yield of around 6 per cent., so that they can scarcely be considered dear at the present level. This corupany has good management and over the Srears has built up a strong financial position. The shares look attractive as a lock-up purchase forvapital appreciation.
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