FINANCE AND INVESTMENT
By CUSTOS
MARKETS are now showing quite clearly what the City—and investors generally—regard as the main financial implications of the political programmes. A Conservative Government is judged- ] think rightly—to be good for equity shares, especially those on which increased dividends could and should be paid, and moderately favourable to gilt-edged. This is why these groups are improving to the accompaniment of optimistic talk about Con- servative election prospects. What will happen between now and February 23rd nobody can tell, but I shall be surprised if the upward movement really gathers momentum. If it did, it would surely invite selling by the political " pessimists," by whom, in this context, I mean those who fear a Socialist victory. Iron and steel shares still look to me the safest purchase provided one chooses carefully.
Preference Repayment Problems
Great surprise has been caused in the City at the announcement by the directors of the Scottish Motor Traction Company that they are now considering fresh proposals relating to the repayment of the Preference capital. Since the board's statement also contains the advice that holders of the one million 61 per cent. £1 Preference
shares should not dispose of their stock, there is a plain inference that there is now more than an even chance that repayment will be made at a reasonable premium over par. It will be recalled that towards the end of last year, following the sale of the company's road transport assets to the Transport Commission, the board adopted the view that the £1 Preference shares should be repaid at par. They were doubtless influenced by previous legal decisions, and went so far as to call meetings for the purpose of approving their reorganisation proposals. Led by a group of insurance companies, which included several Scottish institutions, the Preference shareholders have opposed the board's plan in the Scottish Courts and are believed to be prepared to carry their case, if necessary, to the House of Lords. It now looks as if, for one reason or another, the board has had second thoughts and is willing to compromise by paying a moderate premium. The cost to the Ordinary shareholders would not be large, but it would not be wise to assume that any extra payment to the Preference shareholders will go unopposed.
What happens in this case may prove to have important repel cussions in the investment world. If holders of Scottish Motor Traction Preference succeed in obtaining relatively generous treat- ment then what is to prevent holders of other Preference stocks, such as Cable and Wireless, who are faced with similar repayment problems, from making a fight ?
Imperial Tobacco Yield
Having drawn attention in recent months to the attractions of the £1 Ordinary units of Imperial Tobacco Company, when the quotation was at or under £5, I am well satisfied with the results now announced for the year ended October 31st, 1949. While there were good reasons to suppose that net profits would be well maintained, the increase of £731,647 to £8,852,215 in the net figure, after tax, is as much as even the most enthusiastic optimist could have expected. When allowance is made for minority interests the earnings on the Ordinary capital appear to work out at just over 41 per cent. The directors are, therefore, acting conservatively in maintaining the total dividend for the year at 32 per cent. by paying an 18f per cent. final. In doing so, they are putting £217,019 to general reserve, setting aside £1,500,000 towards providing additional finance required owing to the devaluation of sterling, and are increasing the carry-forward by £55,385 to £2,394,079.
Until the full report and chairman's statement are available it is risky to attempt to explain in detail why profits have risen so substantially. One obvious influence must have been the higher money value of total turnover, brought about mainly by increased selling prices. Nobody can fail to be impressed, however, by the way in which consumption has stood up to the higher prices asked. On the strength of the results and the dividend announcement the price of the Ordinary units has moved up 5s. to 105s., but even at this level the shares are yielding just over 6 per cent., or a full 1+ per cent. more than can be had on the general run of first-class industrial equities. On a long view, the solid merits of the shares will make their influence felt. I would not advise holders to sell, nor would I dissuade any investor from making a purchase. The shares are still under-valued
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