FINANCE AND INVESTMENT
By CUSTOS APART from a fresh slide in goldmining shares, which are still under the influence of desultory selling and a virtual cessation of buying, markets are beginning to show signs of stiffening resistance. Having successfully surmounted two formidable obstacles in the shape of Mr. Butler's funding loan and the £60 million Transport issue the gilt-edged market again looks well set for a further slow climb. The Chancellor has certainly-done his best—without encour- aging- any false optimism—to dispel gloom and investors are trying hard to get their new bearings. At this stage, with American policies still to take shape and the Com- monwealth conference looming close ahead, I would not expect any confident resump- tion of buying but I do look for steadier prices in most groups.
Industry's Capital Needs Quite apart from the uncertainty which now surrounds the trading outlook over a wide field of activity, markets are now being held back once again by the fresh indica- tions of heavy capital requirements. From the latest accounts of the Gas Council it is apparent that this body, which carries through the borrowing of the nationalised gas industry, may well be seeking further millions early next year. From private industry there is plenty of evidence from week to week that whenever market con- ditions are reasonably favourable many companies will seek to replenish their work- ing resources and pay off bank overdrafts. Among the latest seekers of new capital is the British Oxygen Company, which is seeking £3,750,000 from its own share- holders by means of a " rights " issue of new Ordinary shares. Treasury consent has been given to an issue of 1,873,315 new £1 Ordinaries, which are to be offered to the present Ordinary shareholders at 40s. each, in the ratio of three-for-ten. The money is required to help finance this company's large-scale capital programme. As usually happens when a " rights " issue involving a substantial sum is announced, the existing shares have been marked down, in this instance from 51s. to 48s. 9d. The indica- tions are that on the larger capital British Oxygen may well be able to pay a 15 per cent. dividend. On this assumption the £1 Ordinary units at 48s. 9d. are priced to give a yield of over 6 per cent. They seem to me to be cheap, although it may pay to wait for the" rights" to be dealt in on the market towards the end of the month. There may then be an opportunity of getting a stake in this strong and progressive company on really attractive terms.
Gold Fields Surprise Against the background of reduced Kaffir dividends and a market which has been distinctly unfavourable to capital profits and share deals, the latest results of Consolidated Gold Fields of South Africa must be judged surprisingly good. Even after allowing for an increase in the taxation charge, profits of the subsidiary, from which the parent derives practically the whole of its revenue, have risen from £608,000 to £1,113,000. On the strength of such earn- ings the parent company could easily have increased its dividend rate from the 15 per cent, paid for 1950-51, which was itself amply covered. Instead, the directors have followed a cautious policy of repeating the 15 per cent. rate and putting very substantial sums to reserves. The financial position is further strengthened by total allocations to reserve, amounting to £670,000, against similar transfers of only £180,000 a year ago. This caution seems to me to be well justified, in view of the uncertainty which still sur- rounds the South African gold mining industry and the need for further resources to develop the group's various mining pro- positions. Consolidated Gold Fields £1 Ordinary shares are now quoted around 42s., against this year's peak of 53s. lid. At the current level they give a yield of nearly 74 per cent. In the light of the com- pany's strong reserve position and the wide spread of its portfolio, I regard these shares as among the most attractive in the gold mining market.
British Motor Results After the frank exposure of the problems now facing the motor trade made by Mr. Leonard Lord, investors in motor shares should feel somewhat reassured by the results just announced by the British Motor Corporation, the product of the Morris- Austin merger. Although direct comparison of the profit figures now disclosed with those of the preceding year is not possible, it seems a reasonable inference that at any rate up to July 31st earnings were fairly well maintained. When the merger was carried through the directors estimated that profits of the combined businesses would be such as to justify payment of dividends at a rate not less than 52 per cent, per annum on the Ordinary capital. This annual rate is made effective for the four months ended July 31st, the first accounting period of the merger, by the declaration of 174 per cent. actual. Group profits for this period, before charg- ing depreciation, are announced at £5,804,002, which appears to be comparable with combined figures of something between £15 million and £16 million for the preced- ing twelve months. Substantial sums are being ploughed back into the business through retention in the accounts of the subsidiaries, and with the economies of the merger still to be gathered in shareholders may well feel that such savings should go some way towards offsetting any setback in the gross earnings. On the 52 per cent. rate British Motor Corporation 5s. Ordinary shares at 28s. 9d. are priced to give a yield of about 9 per cent.
Rootes Profits Maintained The same sort of reassurance is forth- coming from the preliminary figures for the year to July 31st announced by Rootes Motors. Although the tax charge is heavier —it doubtless includes some provision for Excess Profits Levy—the 324 per cent. dividend is still covered about seven times over. Preliminary results of Humber Ltd. and its subsidiaries, who constitute the manu- facturing division of the group, show only a trifling fall from £1,639,914 to £1,620,160, and after tax are down from £623,910 to £543,580. The same dividend, on the Deferred shares, all of which are held by the parent company, is transferred, the allocation to general reserve is raised from £125,000 to £175,000, and reserve for price fluctuations in stock and additional tool amortisation again receives £250,000. The Rootes group can thus claim to have weath- eredl the difficulties in the motor trade extraordinarily well. The results are cer- tainly as good-as, if not a little better than, might have been expected from the chair- man's references a year ago to the "cold winds" which would have to be reckoned with. At 16s. the 4s. Ordinary shares are priced to yield over 8 per cent.
Standard Motor Dividaid Another leading unit in the motor industry, the Standard Motor Company, has fared relatively less well. Import restric- tions in Australia and other countries are probably mainly responsible for the first serious check to this company's post-war earnings expansion. For the year to August 31st consolidated trading profits of the group have fallen from the 1950-51 peak of £3,900,000 to just over £3 million. Unfortunately, there is only small relief from taxation, which still takes £1,205,000, against £1,290,000, and which includes £135,000 for E.P.L. Here is an example of the folly of a tax which imposes a fresh burden on a company which has followed a progressive expansion policy, and which needs to conserve its liquid resources. Consolidated net profit has come out at £531,000, against £853,000, and after allow- ing for the transfer to employees special fund net earnings cover the 12 per cent. dividend by only a small margin. Standard Motor 5s. Ordinary shares have come down from this year's high point of 8s. 6d. to 6s. At the current level they yield 10 per cent. I would Advise holding for recovery.
A Ceylon Rubber Share Rubber, the commodity, and rubber shares are now beginning to show signs of having bottomed after the recent heavy fall. While it may still be premature to think in terms of any long-term contracts between the United -States and rubber pro- ducers, there is at least a possibility of some attempt at stabilisation in the forthcoming Commonwealth talks and the subsequent discussions which will take place in Wash- ington. Meantime, rubber shares at current low levels seem to have recovery chances. For those who prefer to avoid the Malayan risk some of the Ceylon producers look attractive from this standpoint. Hewagam £1 shares, now quoted around 6s. 9d. against this year's highest point of 10s. 9d. and last year's peak of 14s. 9d., look a reasonable speculation. In the last balance-sheet net liquid assets alone were equivalent to the present market price. On the 10 per cent. dividend the yield is approximately 30 per cent., although one must obviously not budget for the maintenance of last year's dividend rate. This year's crop is estimated, however, at 775,000 lbs., against last year's 759,585 lbs., and the company normally reaps some advantage from selling a part of its output as sole crepe, which fetches a premium over ordinary grades. In his review the chairman emphasised that the crop has probably now passed its lowest point and that young areas coming into tapping should raise the amount harvested in future years.
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