FINANCE AND INVESTMENT
By CUSTOS Jr is already clear that, whether or not a major upward movement in Stock Exchange prices has set in, it is going to be both slow and discriminative. After the first flush of enthusiasm in the new and bracing atmosphere of the " dash for freedom " markets are now showing an unmistakable tendency to pause. In the groups in which prices were hoisted precipitately, profit-taking has reared its ugly head and over the whole field one can detect an air of hesitancy and caution. In my view this reluctance to rush in at rising prices is understandable and soundly based. This is essentially a time for looking round for opportunities rather than building up a large speculative portfolio. The situation and prospect, as I pointed out last week, have undoubtedly improved, but are still clouded by such uncertainties as to make investment a decidedly tricky business.
Some industrial equities, notably those offering reasonable yields on really well-covered dividends, and many commodity shares look attractive. So do gold shares after the severe setback of the last six weeks. I shall be surprised if we do not see a good recovery in dividend-paying Kaffirs between now and the end of the year. Yields on the higher dividend rates just announced are generous. They more than discount the risks inherent in this type of holding.
Australian Stocks I would also suggest that a modest proportion of an investment fund should now find its way into Australian securities. Common- wealth 3f per cent. loan, maturing 1956-59, an Australian internal issue, can be bought around par to yield about f per cent. more than the new Funding Loan here which is of comparable date. Among Australian industrials Courtaulds (Australia) £1 Ordinary shares, with 5s. paid, can be bought in London around 5s. 3d., or the equivalent of about 6s. 4fd. in Australian currency. This is essentially a share for those who do not mind forgoing immediate income since the company, a subsidiary of Courtaulds, the giant rayon concern, is in the early development stage. My recommenda- tion of these Australian securities is based on the conviction that sooner or later the Australian pound, now valued at only 16s. in terms of our money, will be brought up to or near to par. If and when that happens—the revision is held up only by political difficulties with the Australian " Country Party "—holders on this side will make a useful capital profit.
Amalgamated Press Progress
It says a good deal for the shrewd direction of the affairs of the Amalgamated Press, as well as underlining the satisfactory con- ditions of demand in the publishing trade, that for the year ended February 28 this company has been able to report a group profit, after all charge, of £1,987,130, against £1,634,665. Since the latest figure has been struck after charging £2,166,006, against £1,811,468, for taxation, it is clear that there was a sharp increase in earnings before tax, a noteworthy achievement in view of the further increase in costs which is known to have taken place. In the circumstances there can be no real surprise that the directors have seen fit to pay a final dividend of 15 per cent. on the Ordinary capital, which brings up the total distribution to 20 per cent. In the preceding year the dividend was 22 per cent., but in the meantime the Ordinary capital has been increased from £1,200,000 to £1,800,000 by the issue of a free scrip bonus of 50 per cent. On the strictest view of dividend limitation this decision to pay out a larger. sum to the Ordinary stockholders is counter to the Treasury's wishes, but the common-sense view of the matter is that the net sum absorbed by the larger payment is only £198,000 out of a group profit, after tax, of £1,987,130, or about one-tenth. It is worth recalling that a year ago Lord Camrose, the Amalgamated Press chairman, indicated that " if the profits were maintained at anything like their present figure a reasonable increase in dividend would not be incompatible With conservative financial policy." Any reasonable person will
surely endorse that view. In the recent improvement in markets the 10s. Ordinary shares have moved up to 35s., at which the yield on the 20 per cent. dividend is just under 6 per cent. In view of the strong earnings cover and the satisfactory conditions in which the publishing trade is still operating, the shares are still moderately valued.
Phoenix Oil Affairs Having recommended the £1 Preference shares of Phoenix Oil Products as a promising speculative purchase for their liquidation possibilities I confess to some disappointment at the long delay in the clearing up of this company's somewhat complicated affairs. Over a year has passed since the German, Austrian and Belgian interests were sold at satisfactory prices, which resulted in over £250,000 in cash going into the company's coffers. On the strength of those sales the directors intimated that Preference shareholders might expect to receive an early payment of 7s. 6d. a share. Now it becomes clear that all is not well between the board and the Preference Shareholders' Committee, who are indulging in an acrimonious exchange of views as to the company's future. I do not propose to go into the criticisms and counter-criticisms contained in the circulars which shareholders have recently received, since the whole position should become clearer at the meeting to be held in London on July 3. Every Preference share- holder should do his best to attend in person on that day, but in the meantime it is reassuring to find the board confirming their intention of continuing a policy of progressive realisation of the assets, with the object of making a capital repayment. I under- stand that the proceeds of the sales of the Continental subsidiaries are held in London and that the promised repayment, which should amount to at least 7s. 6d. a share, is being held up through dis- cussions still proceeding with the Inland Revenue Authorities on the question of any tax liability which may arise out of the profits earned during the war on the Continent. It is difficult to imagine that any substantial liabilities under this head would arise, but naturally funds cannot be paid out until a clean bill has been given. Now quoted around 6s. 3d. the Preference shares still look under-valued. My advice to holders remains the same—to see things through.
Rubber Price Seesaw Holders of rubber shares are now witnessing some violent fluctua- tions in the commodity market, and to judge from the Stock Exchange reactions are behaving with commendable good sense. Whe.n rubber soared to over 2s. 4d. a lb. it was obvious that there would be adverse criticism from the United States as the principal consumer, and also that the technical position in the market was getting out of hand. This week's sharp reaction to ls. 11d. should not, therefore, be interpreted too tragically. It would not be surprising, indeed, if it marks the first stage of a corrective move- ment which will bring the price down to somewhere between ls. 6d. and Is. 9d. From the share market standpoint, if rubber acquired some stability between those limits it would be all to the good, in that investors would have a reasonably firm basis for making earnings estimates.
Since all the serious buying of rubber shares in recent weeks has been based on an expectation of rubber selling around Is. 6d. a lb., the setback in Mincing Lane from 2s. 4d to ls. 11d. can obviously be ignored. What really matters is the continuation of the demand for rubber, especially, of course, in the United States, at a high level. The prospect, as I see it, is still distinctly promising. Among the low-priced shares those of Malayan Para, whose merits were outlined here on May 12, still look cheap. These are 2s. shares quoted around ls. 5d. On the 5 per cent. dividend paid for 1949, when the average selling price for the company's crop was only 9d. a lb., the yield is 7.per cent. For 1950 the board has made some satisfactory forward sales and it can be calculated that on ls. 6d. rubber this company should earn about 35 per cent. on its issued capital. • A substantial increase in this year's dividend can be confidently forecast.
Previous page
