' FINANCE AND INVESTMENT By CUSTOS COURAGE and resource are
the distinguishing characteristics of Mr. Butler's first budget. He has tackled the subsidies, given the dearer money screw another turn and made a brave attempt to restore incentive. From the City standpoint this is a " good " budget—not in the sense that it favours financial institutions or investors—but for the valid reason that it promises to restore soundness to the economy and foreign con- fidence in the pound. The 4 per cent. Bank Rate is, of course, a heavy blow and security prices have taken another jolt, but investors will not quarrel with a move which, from the longer-term standpoint, will contribute as much as anything to a new and sounder basis of values. Unfortunately, the same cannot be said of the new Excess Profits Levy which, in spite of the reduction of Profits Tax and the introduction of various concessions to hard-hit companies, seems to me a thoroughly bad piece of legislation. How the Levy will affect individual com- panies is going to take a great deal of work- ing out and I foresee long delays and many uncertainties in the operation of the tax.
Halifax Building Strength
One field of investment on which the fresh rise in the Bank Rate is bound to have important repercussions is the building society movement. So far, dearer money has had only a modest reflection in the rates allowed on shares and deposits by the build- ing societies, on the one hand, and in their charges for mortgage loans to borrowers on the other. It would be surprising if, in the new conditions now ushered in, even the larger and stronger societies are able to avoid raising their rates on shares to some- thing around 21 per cent. free of tax. In my view the shares of the stronger building societies with their tax-free attractions offer a sound medium for saving, especially in these troubled times. As an example of financial strength, the latest figures of the Halifax Building Society are instructive. At January 31st this Society's liquid funds at £37,962,265 represented nearly 22 per cent. of total assets. Once again the Halifax achieved new records, with a rise in assets of £11,723,892 to £177,211,675, which makes it easily the largest unit in the build- ing society movement. On the lending side new advances amounted to £31,761,928, of which the average amount of advance was £892. Total mortgage assets are up to £138,758,960. Reviewing the year's acti- vities, Mr. Algernon Denham, president of the Society, has brought to light one or two interesting facts. Since last autumn this Society, although it has kept its rate on shares rather below the general average, has had an unexpectedly heavy inflow of funds. Here we see the reflection of trans- fers from local savings banks, induced by the income-tax probe and the fall in Stock Exchange values. Mr. Denham makes no secret of the extent of the depreciation which the Society had incurred at the balance- sheet date on its holdings of gilt-edged securities. Carried in the balance-sheet at £12,505,231 these holdings had a market value on January 31st which was £282,410 below the book figure. This decline has been covered by a transfer from the invest- ment reserve.
Courage Dividend Surprise At long last there are signs of a modest recovery in brewery shares. Results recently announced by several companies have exceeded recent market forecasts, and now we have a Budget which does not include this heavily taxed industry among its targets for reinforcing the revenue. Unexpectedly good results have just been disclosed by Courage and Company, the London brewers, whose group profits after all charges, including taxation, rose last year from £293,126 to £308,506. That comparison does not pro- vide the full measure of the improvement in trading which actually took place, in that the 1951 figure has been struck after provid- ing £531,512 for taxation, against a taxation charge in 1950 of £369,560. If one adds back the tax provision group profits, before tax, are seen to have risen from £662,686 to £840,018. On the strength of these figures the Courage directors are fully justified in their decision to restore the Ordinary divi- dend rate from the 18 per cent. level to which it was reduced last year to the 20 per cent. which had previously been in force since 1945. Following these results the £1 Ordinary units have moved up by two or three shillings to 53s. 6d. At this level the return is nearly 71 per cent. on an equity of good standing whose dividend prospects should not be affected by the new Excess Profits Levy. This seems to me a generous return, which justifies a purchase for long- term investment.
John Barker Setback While the brewery industry appears to be turning the corner after its long pericd of falling sales, the retail stores are in the midst of difficulties. Fresh evidence of the en- croachment of substantially higher costs on the margin of profits comes from John Barker, the Kensington stores, whose preliminary figures for the year to January 31st reveal a sharp setback in trading results. Profit, before charging taxation, is down from £946,749 to £624,415. Although tax provision has fallen from £469,016 to £367,591 the board's decision to maintain the 20 per cent. dividend rate on the Ordinary capital has involved a reduction from £175,000 to £100,000 in allocations to reserves and drawing down the carry- forward by £35,000 to £476,562. On the basis of the latest figures the 20 per cent. Ordinary dividend is covered by only a relatively slender margin, so that even at 49s., at which the yield is a little over 8 per cent., the John Barker £1 Ordinaries do not look to me particularly attractive.
Bradford Dyers' Results Against the background of unfavourable news from the textile industries the 1951 results of the Bradford Dyers' Association afford a striking contrast. Admittedly, they relate to a period which ended nearly three months ago, but they have been judged sufficiently good to justify a cautious board of directors in raising the Ordinary dividend by 21 per cent. to 121 per cent. Trading profits and sundry income of the group were practically unchanged last year at £2,899,489, against £2,934,358, and were thus held at practically peak levels. Unfortunately, the
full report, which does not contain the chair- man's annual statement, throws no light on recent trading experience or on the outlook. It does disclose, however, a financial position of great strength. Net working capital of £6,968,000, of which £4,400,000 is in cash , and investments, is obviously ample to cover group capital commitments amounting to only £950,000 and to leave an impressive margin for contingencies. Reserves of £3,145,000 substantially exceed the issued Ordinary capital of £2,559,000. Whatever the immediate trading prospects may be, the assets position is thus one from which stockholders may draw encouragement, In the present depressing conditions in the textile share market Bradford Dyers' £1 Ordinary units are standing at only 23s., offering over 11 per cent. on a well-covered- dividend. It seems to me that this is a case where caution is being overdone and where a purchase for long-term investment Mould prove worth while.
Brush Group Dividend
Market forecasts are fulfilled by the decision of the Brush Electrical Engineering Company to maintain its-Ordinary dividend for 1951 at 10 per cent. Preliminary figures for the Brush Aboe group show that an increase in sales last year by £4,153,163 was flanked by a rise in costs of £3,961,989. Trading profits rose by £180,449 to £2,566,433. These figures taken by them- selves and bearing in mind the promising prospects of the group in a rearmament phase would justify a higher quotation for the 5s. Ordinary shares than the current level of 5s. 6d. What the market is not overlooking, however, is the substantial new refinancing which this group needs to undertake as soon as conditions are reason- ably favourable. Until recently it has been supposed that much of its refinancing would take the form of a " rights " issue of new Ordinary shares, the effect of which would be to hold down the quotation for the existing shares in the market. Until details of the company's plans are disclosed any would-be buyers should hold off.
Fife Coal Shares Shares of companies whose goal is liqui- dation are again coming into their own now that the prospects for capital appreciation in other directions have become unpromis- ing. This explains the recent firmness of colliery shares, most of which have already repaid part of their capital but are still awaiting the receipt of their compensation money before the final pay-out to share- holders can be made. In the colliery group the Ordinary shares of Fife Coal look inter- esting at the present price of 87s. Fife has 'a strong claim to a substantial share of the Scottish award for two reasons—(1) its pits are among the best and most modern in the industry, with particularly long lives and good development prospects, and (2) the coal mined in these pits before nationalisa- tion showed a generous profit per ton. Compensation on an estimated basis of 28s. a ton of disposable output would give the Fife Company £4,200,000 which, added to the £2,680,000 other assets, would produce a total of £6,880,000. That, in relation to the present issued capital, would indicate a value of about 112s. for the Ordinary shares. In all such estimates there is inevitably a margin of error, but it seems a reasonable forecast that a buyer at today's price should ultimately get a useful tax-free profit.
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