FINANCE AND INVESTMENT
By C U STOS TEM RE is nothing in the current behaviour of markets to call for any revision of the View that improvement should continue—on
cautious lines. International political uncertainties will doubtless deter all but the most light-hearted from letting out much specula- tive sail. That is all to the good and will ensure that the technical condition of markets remains-sound. The rising tides of inflation, on the other hand, seem likely to persuade most people that this is no time for liquidity and that carefully-chosen equities should prove satisfactory holdings. Home industrials are moving slowly ahead under the influence of good profits and dividends but I suspect that most investors now have half an eye on the coming budget. The rise, in my view, is not likely to develop into the runaway kind. Of the commodity groups, which have obvious attractions in this inflationary phase, oil, tin and copper shares look as good as idly. For the moment rubber shares are under a cloud and 1 see no hurry to rush in and buy, but equally I would not advise holders to sell. Share prices have lagged well behind the commodity rise.
Joseph Lucas Results
As might have been expected in the light of the rising output of the motor industry, Joseph Lucas, the accessory makers, have succeeded in achieving a spectacular increase in profits. For the year which ended on July 31 consolidated surplus from opera- tions, after deducting taxation, has jumped from £862,790 to a new peak of £1,359,474. This comparison probably understates re .1326p the true increase in gross trading its, but to what extent unfor- tunately cannot be judged from t company's preliminary `state- ment. No taxation figures are provided, while another complicating' factor is that in each of the two preceding years £500,000 was charged for replacement reserve before arriving at the consolidated surplus figure. If one assumes that a similar charge has been deducted in reaching the latest consolidated surplus, it would appear that the dividend now announced of 64 per cent, is being paid out of earnings of approximately 45 per cent. This year's dividend of 64 per cent. compares with 174 per cent. for each of the three preceding years but the Ordinary capital was trebled at the end of last year by the distribution of a 200 per cent, scrip bonus. The present rate is, therefore, equivalent to 20 per cent. on the old capital. Judged in relation to the rise in earnings and the available total of net profits the increase in dividend is modest. It is clearly consistent with conservative financial policy. Joseph Lucas £1 Ordinary shares are now quoted around 31s. 6d., yielding just over 4 per cent. on the latest dividend. The earnings yield, on the other hand, appears to be as high as 30 per cent. The shares seem to me to be reasonably. valued.
Silver Line Choice Holders of Silver Line 44 per cent. Preference shares have now received the option forms from the company giving them the choice of taking 21s. in cash, plus dividend arrears, or 16s. in cash, plus arrears, and one-half an Ordinary 10s. share. The choice must be exercised not later than November 27. As things stand at present, with the Ordinary shares quoted in the market around 10s. 3d., which makes one-half an Ordinary share worth 5s. 14-d., there is little in the choke if it is judged from the immediate stand- point of pounds, shillings and pence. My own feeling, however,
is that Preference shareholders would be well advised to take up the small stake in the equity which is now offered to them. After all, they would still be accepting capital repayment to the extent of 16s., plus dividend arrears of approximately ls. 3d. net, and acquiring an Ordinary share-holding to the extent of only just over 5s. The important point, as I see it, is that the whole repayment plan has been made possible only through the energy and skill of the present management, with Mr. Henry Barraclough at its head. It should surely prove the right course to back the same stable by taking up a slice of the company's equity. In advising Preference holders to follow this line of action I must make it clear that there is little likelihood of any Ordinary dividend for some time ahead. On a longer view, however, Silver Line lOs. Ordinaries should reflect the benefits of sound and alert management, the rehabilita- tion of the company's finances and the improvement in freight rates.
New Issue Opportunity
The opportunity for investment on attractive terms often occurs in the case of new securities offered to the public. A good example is provided by next Tuesday's offer of 750,000 Ordinary 5s. shares at 13s. 9d. each in John Bright and Brothers, the old-established Lancashire textile concern. This company was registered in 1881, having acquired- the business of cotton spinners and manufacturers founded by Jacob Bright, the father of John Bright, the Liberal reformer, in 1809. Since 1933 the majority of the three million Ordinary 5s. shares of the company have been owned by Kleinwort, Sons and Company, the City investment banking house, and it is this house which is now offering a proportion of its holding so as to obtain a Stock Exchange quotation for its very large investment. John Bright and Brothers differs from the general run of Lancashire textile concerns, in that it has gradually turned over to increased production of canvas, belting ducks and cord fabrics, with the result that its whole production now goes into industrial uses. Except as regards the production of rayon yarn the company is largely self-contained, in that it is organised as a vertical structure equipped to carry out all processes from the spinning of raw cotton to the finished product. The position as regards assets and earnings set out in the prospectus is impressive. The book value of the assets is about 13s. a share, but that does not take account, of course, of, present-day values. Fixed assets carried in the balance sheet at £925,628 have an insurance value of over £4 million. As to earnings, the 10-year record shows an average of 48.6 per cent. earned on the present Ordinary share capital. It follows that at the offer price of 13s. 9d. the earnings .yield on this average basis is about 18 per vent. In each of the past two years the com- pany has paid a dividend of 20 per cent. For the year ending March 31, 1951, an interim of 5 per cent. has already been paid and the directors now forecast a 15 per cent. final, thus main- taining the 20 per cent. rate. On this basis the 5s. shares at 13s. 9d. are being offered to give the attractive yield of 74 per cent. On last year's earnings the earnings yield is over 23 per cent.
A Good Industrial
I called attention earlier this year to the investment merits of the 5s. Ordinary shares of Blaw Knox, the constructional machinery manufacturers. The price has moved up a little to 33s., but them seems to me to be scope for further improvement. For 1949 the company paid a dividend of 30 per cent., but earnings amounted to 113 per cent. It is obvious that here is a case in which, without any infringement of the canons of sound finance, the directors could treat the Ordinary shareholders more generously. For 1950 the interim dividend was maintained at 10 per cent. in July and the final payment is not due to be announced until next March. Mean- time, it is believed that the company's business is being maintained at a high and profitable level, considerable success having been achieved in introducing new lines of heavy earth-moiting equipment. Another possibility from the shareholders' standpoint is that the directors might see fit to bring the Ordinary capital more closely into line with the real resources 'employed in the business by dis- tritruting a scrip bonus. Against the issued capital of £169,200 the company has a share premium account of £152,160 and carries forward undistributed profits of , £372,213. On the. 30 per cent dividend the yield is 44 per cent.
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