FINANCE AND INVESTMENT
By CUSTOS brrominoNAL politics on the one hand and inflation on the other are now tugging violently at security prices. At the moment infla- tion is exerting the stronger influence and markets are somehow succeeding in moving ahead. Admittedly the rally is cautious and there is some ground to be recovered before pre-crisis levels are reached, but there can be no doubting the underlying trend. When- ever prices show signs of falling business dries up ; a rally is the signal for fresh buying. What is also significant is the parallel move- ment of gilt-edged stocks and equity shares. In the broadest economic sense the inflationary forces which are helping to sustain equity share prices are unhelpful to gilt-edged. In present conditions, however, inflation, through weight of money-seeking investment, is tending to push up all security values. I would not advise any wholesale switching out of fixed-interest into ordinary shares.
Brewery Profit Contrasts From the results now being announced by several of the leading brewery companies it is becoming increasingly clear that the brewers catering for a wide home and export trade and with a substantial interest in bottled beers are faring relatively well. Following the good results of Guinness and Bass, Ratcliff, the important Bass subsi- diary, Worthington and Company, announces trading profits for the year to September 30th of £662,171, against £625,072. Net profit, after tax, has risen from £310,137 to £345,775, and the divi- dend on the Ordinary capital, all of which is held by the parent concern, is being raised from 22 per cent, tax free to 251 per cent. tax free.
In contrast with those figures H. & G. Simonds, the Reading brewers, who also have some interest in the bottled beer trade, have to announce a moderate setback in consolidated trading figures at £758,000, against £825,000. The net profit attributable to the parent company is £37,000 down at £210,000. Even this figure would have allowed the directors to maintain the 28 per cent. divi- dend, but obviously with an eye on the possibility of some further fall in earnings the board has cut the Ordinary distribution to 24 per cent. Following the announcement of these figures Simonds! £1 Ordinary units have fallen to 75s. The yield on the 24 per cent. dividend is thus nearly 61 per cent. This seems to me to make an adequate allowance for the trading risks.
Cinema Share Prospects There should be neither surprise nor disappointment at the announcement by Odeon Theatres that consideration of payment of the Preference dividend due on December 31st is being postponed until the full results of the current financial year ending June, 1951, are available. Odeon Theatres-is, in many senses, the key company in the J. Arthur Rank group, in that it has extensive interests in the film production side of the business and draws its dividends from numerous subsidiaries, some engaged in production ind some only in film exhibiting. So far as the Preference diiidend is concerned, it is worth noticing that the company has in issue £2,750,000 of 6 per cent. Preference capital, behind which there is only £946,991 in Ordinary shares. It follows that before paying the 6 per cent. Preference dividend the board should feel pretty sure that the corner has been turned and that better times lie ahead. On the production side it seems a safe assumption that the group has now succeeded in reducing its losses to relatively small proportions, although in the current financial year it will still have to do some writing-off of past losses. On the exhibiting side, to judge from reports from the industry, there has been a substantial improvement over last year. The availability of better films has led to a marked increase in cinema attendances, and on top of that the Odeon group must now be reaping some of the benefits of the large-scale internal re- organisation scheme put in hand two years ago. I think it is a fair inference, therefore, that the companies engaged purely in the film- exhibiting side of the business will be able to show substantially Increased net profits when the next accounts appear. In the market there has been a moderate recovery in cinema shares during recent months, but after the experiences of the last three years, in which cinema shares have come under the cloud of a depressed film industry, prices have still been left at levels showing high yields. The 6s. 8d. Preferred Ordinary shares of General Theatre Corpora- tion, the cinema subsidiary in the Odeon group, provide a case in point. These shares now quoted around 9s. 6d. are yielding over 10 per cent, on the 15 per cent, dividend paid for the year to June 24, 1950. In good years this company has paid dividends ranging between 221 per cent. and 231 per cent., and I should not be sur- prised if a payment nearer to these rates than to the current 15 per cent, rate is forthcoming for the financial year which ends next June. There should be ample scope, therefore, for an improvement in the price of the shares by a few shillings over the coming months. The company owns or controls 44 cinemas, most of them in the Provinces.
A Tea Share Yield I seldom refer to the merits of tea shares, which are in many ways a specialised market. One of the drawbacks is that tea shares are apt to be all one way, either buyers or sellers, with the result that it is often difficult to get a reasonably close quotation. Provided this point is kept in mind, investors who are willing to take the long view can often pick up tea shares offering good average yields over a period of years. Travancore Tea Estates £1 Ordinaries look an attractive purchase from this standpoint around the current price of 58s. 9d. For the year ended September 30, 1949, the accounts showed that with a crop of 4,158,482 lbs., costing Is. 7fd. a lb. and realising 2s. 2fd., the company earned over 50 per cent. on the Ordinary capital, out of which it paid a 30 per cent. dividend. For the year to September 30, 1950, the company's crop amounted to 4,431,200 lbs., at increase of over 270,000 lbs. Every penny a lb. profit on this crop is equal to 17f per eent. on the capital. The company will thus. have benefited substantially from the rise in the selling price of tea. It has already paid two interim dividends of 12f per cent. eaCh, making a total of 25 per cent, to date, which suggests tIpt a total distribution of at least 40 per cent, should be well within earning capacity. At one time early this year the shares were up to 65s. On the interim dividends alone the yield at 58s. 9d. is approximately 8f per cent. If the total is made up to 40 per cent. the return will be brought up to about 14 per cent.
Jowett Cars Prospects As I have often pointed out in recent weeks, depressed market conditions provide opportunities, especially where companies make new share issues calling for funds at times when purse-strings are tightly held. The large " rights" issues made by such companies as British Aluminium and Dunlop Rubber have brought market prices down to levels distinctly attractive to the long-term investor. Although there has now been some improvement, both these shares still look to me to be well worthwhile. A much smaller company which has just made a " rights " issue, and whose shares now look to me to be under-valued, is Jowett Cars. This concern, whose fortunes have recovered strongly, in recent years, has made an issue of one new 4s. share for every six held at a price of 4s. 3d. On the eve of this operation the shares were quoted in the market at just over 6s., giving an ex " rights " equivalent of 5s. 9d. The new shares now stand at only 4s. 9d., which means that the new issue, reinforced, of course, by general market conditions, has brought about a substantial decline. In their circular to the shareholders the Jowett directors forecast that, in the absence of any unforeseen circumstances, trading profit for 1950 would be close to £200,000, a result which would give a net profit amply sufficient to justify the maintenance of the current 10 per cent. dividend rate on the increased Ordinary capital. It is worth noticing that in 1947 the 10 per cent. Ordinary dividend was paid out of earnings of 48 per cent. In 1948 net earnings were 33 per cent. and in 1949 as much as 95 per cent. The company bas thus ploughed back substantial sums into the business and built up sound asset values. Assuming that the 10 per cent. dividend is maintained the 4s. shares around the current price of 4s. 9d. will be yielding 8f per cent. The offer of new Ordinary shares was heavily over-subscribed. A recovery to something like the pre-issue level seems to me to be justified by the company's position and prospects.
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