FINANCE AND INVESTMENT
By CUSTOS HOLIDAY distractions are still reinforcing the obvious political restraints on stock market activity and turnover is at a low ebb. It is difficult, in the circumstances, to detect any real trend in prices. Industrial Ordinary shares, after approaching a new post-war peak a month ago, have suffered a moderate reaction ; so have commodity shares, despite the high yields they offer on current earnings and dividends. With a Korean peace a near- term probability the outlook for these groups is clearly dependent on the speed of rearma- ment in the United States and here. If pro- grammes are to be slowed down, the early prospects for commodity shares and equity shares in general cannot be considered good, but I find it hard to believe, even allowing for the vagaries of American politics, that there is any serious risk of a substantial cut in defence spending.
Gilt-edged Prospect Then what of the prospect for gilt- edged ? In theory a Korean peace which does not bring with it a slackening of rearmament spending should not have any special significance as a " bull point " for fixed-interest stocks. But it may well have a psychological effect through its effect on investment sentiment, especially after the recent slide in gilt-edged prices. This week, admittedly, we have a fresh reminder of the heavy demands on capital resources which are being made by the nationalised industries. There is a £75,000,000 issue of British Gas stock to meet the requirements of the twelve Area boards. So far, however, the gilt-edged market has taken this formidable operation in its stride, prices having quickly recovered after a brief spell of weakness. Large-scale Colonial borrowings are also in early pros- pect, but they, too, need not bring prices down provided they are well spaced out and the terms are suitable to the requirements of institutional buyers. From the latest report of the British Transport Commission it seems clear that the nationalised transport industry will be seeking new money from the public if not this year, then almost certainly next. Net liquid resources have been reduced by about £200,000,000 in the first three years of the Commission's operations. Although the pace of expenditure, which is much below, what the Commission would like, is slowed down by the official tightening up of the capital investment programme, the amounts required are continually increased by the rise in prices. When the Commission comes to market, it will almost certainly be for a large amount.
W. H. Smith Progress Contrary to some Stock Exchange fore- casts W. H. Smith & Son, the newsagents and stationers, are not increasing their ordinary dividend. For the year to March 31st the holding company, in which the investor is directly interested, is again paying 12 per cent despite an increase in group trading profits from £1,570,530 to £1,629,094. Share- holders will note, however, that the earnings were soundly based on a substantial increase in sales in all sections of the business and that negotiations for the renewal of the book- stall contracts with the Railway Executive and the London Transport Executive are proceeding in a friendly atmosphere. The outlook is clouded by rising wages costs but I do not think shareholders need get depressed. Yielding just under 5 per cent. at 48s. the £1 ordinaries should be worth holding.
A Bid for Selfridge's These are interesting days for stores shareholders. It is not that there is anything particularly exciting in the monthly figures of retail sales—although they are ' quite encouraging — but the market is now enlivened by the possibilities of mergers and property deals. Among the much-heralded take-overs which has been confirmed by events is the proposed acquisition of Selfridge (Holdings), who control the famous Oxford Street store, by Lord Woolton's group con- trolled by Lewis's Investment Trust. The terms of this offer look to me reasonably attractive to Selfridge shareholders, who are bid the equivalent of 65s. a share. This is to be satisfied as to 63s. in three 4s. Ordinaries of Lewis's Investment Trust, taken as being worth 21s. each, and as to 2s. in cash. The Trust is, therefore, bidding £3,400,000 for the Selfridge equity, which is roughly £2,000,000 in excess of the book value of the equity after allowing for Preference capital. Is this an adequate recognition of the concealed property values in Selfridge's fixed assets ? Without fuller information it is impossible to be sure, but it is worth keeping in mind that there must also be a substantial property element in Lewis's Investment Trust shares. In recent weeks, despite denials of any deal, Selfridge (Holdings) shares have moved up from around 50s. to 61s. under strong buying pressure. As there are at least two parties to a deal it is surely best that an official intimation that negotiations are in progress should be made at the earliest possible moment, to avoid the obvious possibility that shareholders of long standing may sell at low prices to speculative buyers " in the know." This is what has happened in this case although, oddly enough, the Stock Exchange Council has not seen fit to institute any inquiry into the recent buying. Apparently, the jobbers concerned were not unduly upset and made no complaint to the Stock Exchange authorities. This seems a very poor standard for deciding whether or not the facilities of the market are being abused, although I must confess that once one attempts to draw the line between intelli- ,gent anticipation and- backing a virtual certainty on the strength of a leakage one gets into difficult territory. What would be the modern view, I wonder, of the famous Rothschild bidding for gilt-edged on the strength of carrier - pigeon news of Napoleon's defeat at Waterloo ? Backing a certainty or reaping the. just reward of initiative ? I incline to the charitable view. Silver Line Prospects Ordinary shareholders in Silver Line may feel a little disappointed that, judged from the standpoint of immediate dividends, pros- perity is for-them still just around the corner. The full accounts for 1950 show a loss of £43,005, which compares with a loss of £32,164 for 1949. After crediting £37,625 from Preference dividend reserve and making other adjustments there is a small credit balance of £14,707 carried forward, against £40,234 brought in from the previous year. This, on the face of it, is a disappointing outcome of last year's operations, but as Mr. Henry Barraclough, the Silver Line chair- man, points out, the recovery in freight rates did not take place until the end of 1950 and had very little bearing on last year's figures. He adds that this year's results should show "a very satisfactory profit." As everyone is aware, the rise in tramp freight rates in 1951 has assumed spectacular proportions, and even allowing for some increase in costs the tramp shipping companies should be able to show high rates of earnings. In the case of Silver Line, shareholders can view with satisfaction the solid progress achieved since Mr. Barraclough assumed the chairmanship three years ago. During these three years the company has disposed of all its unprofit- able vessels, withdrawn from all its unprofit- able trades and repaid its Preference capital. It has now bought a cargo vessel built in 1947, it is building two tankers, which are being placed on long-term charters, and another cargo vessel. This programme obviously involves substantial capital out- lays, but liquid resources amount to over £1 million and the company still has to receive the proceeds of its recent sales of tonnage to the Cunard group. All in all, the outlook for •dividends must be judged promising and this is clearly reflected in the current quotation of 17s. for Silver Line 10s. Ordinary shares. At this level the immediate prospects seem to me to be fairly fully dis- counted, especially as the shipping-share market may have to contend in the coming months with the adverse influence of some falling off in freight rates from reciint peak levels. Nevertheless, the shares still appeal to me as a good speculative long-term holding.
A Cheap Textile Share In the current dull condition of the market some excellent trading results and dividends, especially of the smaller companies, are finding no reflection in Stock Exchange quotations. A good illustration is afforded by the Is. shares of John Barnes, manufac- turers of sheets, curtain cloths and dusters, which are standing around 2s. 7id. despite the increase in the dividend from 17+ to 221 per cent. For the year to March 26th group trading profits have risen from £215,566 to £299,372 and net profit, after tax, is up from £84,622 to £112,828, which is equivalent to earnings of 108 per cent. on the ordinary capital. The dividend is, therefore, covered about. 5 times over. The balance-sheet position is also impressive. Although stocks have increased from £152,386 to £233,336 cash holdings are £241,626, against £161,310. The asset value behind the Is. ordinaries is nearly 3s. At today's level of 2s. 7fd. the shares offer the attractive yield of 8+- per cent. In my view, they should have scope for imorovement.
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