FINANCE AND INVESTMENT
By CUSTOS STOCK market values reflect the opinions and judgement of a host of investors and speculators whose skill in assessing market influences varies enormously. These influ- ences include statistical data, trade reports and political and economic developments, as well as mass hopes and fears-both rational and irrational-and good and faulty inter- pretations and assessments. Generally it is the views of a small but highly skilled group of investment experts which mainly deter- mine the course of the market ; but even the experts must be baffled by the complex forces which face them today. Events in Russia and Egypt may well have a decisive influence on the political and economic future of the world. Does the news from Russia portend a break-down of the Soviet organisation or an abrupt change in foreign policy, or simply an internal purge which may increase Russia's strength ? What will be the effect in the Middle East and on the big oil companies ?
Day-to-Day Influences The answers are not yet available, nor do we yet know if Mr. Butler will achieve his hopes of a balanced budget, bigger exports and increased savings, without inflation and without curtailing the defence and housing programmes or the social services. There is also the enigma of what will happen when American defence spending declines. We know that in some years a drop of 4 per cent. in U.S. consumption has caused a fall of 30 per cent. in American imports from the sterling area ; but history does not always repeat itself. All these problems must be kept in view in any attempt to appraise the 1953 market outlook, but they may have little effect on the immediate course of the market. Here the day-to-day influences are more important : the breakdown of " take-over " negotiations ; the release of funds immobilised last week in the Anglo- Iranian issue ; reports of better trade in the West Riding and higher prices at the wool sales ; the weekly revenue returns ; expec- tations of a resumption of municipal borrowing ; the liquidation of a deceased estate ; the purchase of " special situation " stocks ; the endemic shortage of new 'sav- ings. These are the common daily deter- minants of market movements, but they offer virtually no clue to the state of the market a month or a year hence.
More Bank Dividends Hopes that the raising of the National Provincial Bank dividend from 15 to 16 per cent. would be followed by higher payments by Lloyds and the Midland were disap- pointed.. Their dividends were unchanged, though both could have paid more, since net earnings in each case were about 8 per cent. higher, compared with a rise of under 4 per cent. in National Provincial's net profit. The explanation may be that the Lloyds and Midland directors had already decided to maintain their dividends before the N.P. announcement was made. Bank shareholders, however, may have something to look forward to a year hence if the better trend of bank profits is continued in 1953. Apart from the latest increase in the N.P. distribution, the dividends of the " Big Five " have been unchanged since the pre- war years. If earnings show a further improvement this year, some compensation for the steep rise in the cost of living and the heavier tax deductions since 1939 would not come amiss to the shareholders.
West Riding Revival News about the woollen and worsted industries continues cheerful. At the first London wool sales of 1953 competition for almost all types of wool was strong ; while the Wool Industry Bureau Statistics show that the rate of wool consumption in November was the highest for any month for nearly two years and was 44 per cent. higher than in November, 1951. Then from Major Beddington Behrens, Chairman of Jeremiah Ambler, which has substantial interests in worsted spinning, comes the statement that everyone in the group is now on full time and that double shifts are being worked in Northern Ireland. He adds that the company is in an exceptionally strong financial position and that profits for the year are satisfactory. This company raised its interim dividend from 7 to 7.7 per cent., just before declaring a 10 per cent. capital bonus, and this step suggests that the total payment for the year may be maintained at 16 per cent. on the enlarged capital. This would represent 17.6 per cent. on the previous capital. If the hope is fulfilled, the 5s. shares, now around 1 Is. 3d., would yield over 7 per cent.
West Riding Worsted and Woollen Mills reports a rise of £111,700 to £804,873 in group profit for the year to August 31st. After providing £460,816 for tax, net earn- ings are about £27,000 better, and the dividend for the year is raised from 221 to 25 per cent. This payment is covered over three times by earnings, and I regard the shares as an attractive purchase at the current price of 74s. 6d. to yield nearly 61 per cent.
Diamond Dividend Hopes Sales of diamonds in 1952 have fulfilled expectations by setting up a new record at £69,662,000, compared with the previous best of £65,058,000 in 1951. The rise was due solely to an increase of £5,615,000 to £23,892,000 in sales of industrial stones, for sales of gem stones were about £1,000,000 lower than in 1951. The De Beers group evidently has had another prosperous year, and the market expect a total dividend of 220 per cent. for 1952, with more optimistic estimates ranging up to 240 per cent., against 200 per cent. for 1951. On a 220 per cent. basis the 5s. Deferred shares at 68s. would yield over 191 per cent, gross, after allowing for Dominion tax relief. The accounts for 1952 should show an excep- tionally strong financial position, and by normal criteria the shares still look cheap, though some brokers have reservations about them. No one expects another 1930-32 slump, but it is felt that sales of gem diamonds could react sharply on a moderate setback in U.S. trade, and that the demand for industrial stones may drop when the U.S. stockpiling purchases are completed. While these possibilities should be borne in mind, any serious recession in America would, no doubt, lead to cheaper Money and increased public works expen- diture with the object of reviving trade. Meanwhile, U.S. industrial production is at a post-war peak and is likely to remain high for another year or so.
Since I mentioned Anglo-American In- vestment Trust £1 shares around 81s. the price has risen to 96s. 3d. on market esti- mates of a total dividend of 75 per cent. for 1952, against 60 per cent. for 1951. If this estimate is realised, the yield would be about 191 per cent., allowing for Dominion tax relief. From the angle of asset values these shares still seem more attractive than De Beers, but I hesitate to recommend a pur- chase after the rise of 15s. 3d. in five weeks.
Pearl Assurance Yield When the national insurance scheme was introduced many people thought that the industrial life assurance companies would be badly hit. This expectation has certainly gone astray in the case of Pearl Assurance, which reports a record new life business of £47,010,518 in 1952, after deduction of reassurances. Of the total, £27,181,523 represents new industrial life business, com- pared with £23,626,520 in 1951, and the increase in new business in the industrial branch is considerably greater than that in the Ordinary branch. Assurance companies are not obliged to reveal appropriations to inner reserves, and the Pearl usually shows just 'enough earnings to cover the dividend, which has risen from 40 per cent. free of tax for 1945 to 55 per cent. free of tax for 1950 and 1951. The £1 Ordinary shares can now be bought at about 181 to yield £5 14s. Od. per cent. gross on the 55 per cent. tax-free dividend. This is a good return on this type of investment, for assurance shares are growth stocks in a very real sense. Their dividend records, compared with most bank shares, are evidence of that.
Ariston Gold After a long period of neglect, West African gold mining shares have lately come to life. One reason for this lies in the Volta power project, and other development schemes for the Gold Coast Colony which will require large amounts of capital. With these needs in mind, it would be folly on the part of responsible native politicians to jeopardise the flow of new capital to the Colony by penalising investors in enter- prises already established there. Hence the revival in West African gold shares, which went out of favour when the cold Coast Colony was given a substantial degree of self- government. Ashanti have risen to 24s. Od. from the 1952 low " of 15s. 9d.; while Ariston 2s. 6d. shares have climbed slowly from 4s. 104d.-the lowest price for over ten years-to 6s. 3d. Ariston's working hrofit for the year to September 30th, 1952, was helped by gold premium sales, and the raising of the interim dividend from 71 to 10 per cent. has encouraged hopes in some quarters that the total payment for the year will go up from 25 to 30 per cent. Recent Monthly profits have been good, and profits should rise further when the extensions to the plant, which will raise milling capacity from 30,000 to 40,000 tons a month, are completed. Ore reserves average 61 dwt. and represent eight years' supply at the current milling rate. For a gold mine Ariston has an excellent record-dividends have been paid every year since 1933-mid I regard the shares as a promising speCula- tion at about 6s. 3d. On a 25 per cent. dividend the yield is 10 per cent., but it would be 12 per cent. if the dividend goes . up to 30 per cent.
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