FINANCE AND INVESTMENT By CUSTOS THE City has been favourably
impressed by the outcome of the Chancellor's funding position, but not to the point at which it is prepared to hoist Stock Exchange prices. So far as can be judged, Mr. Butler will have a modest margin in hand after covering the two maturing loans with which to reduce Treasury Bills, and the banks will not need to sell gilt-edged securities to maintain their liquid positions. That is all to the good but it still leaves Mr. Butler with plenty of hurdles to surmount. The September export figures, although not so depressing as had been feared, were not good and the Exchequer position is still deteriorating. Buyers should continue to tread warily. THE City has been favourably impressed by the outcome of the Chancellor's funding position, but not to the point at which it is prepared to hoist Stock Exchange prices. So far as can be judged, Mr. Butler will have a modest margin in hand after covering the two maturing loans with which to reduce Treasury Bills, and the banks will not need to sell gilt-edged securities to maintain their liquid positions. That is all to the good but it still leaves Mr. Butler with plenty of hurdles to surmount. The September export figures, although not so depressing as had been feared, were not good and the Exchequer position is still deteriorating. Buyers should continue to tread warily.
British Celanese Problems Investors seeking guidance as to the recovery prospects of the rayon industry will find a balanced survey in Mr. G. H. Whigham's statement accompanying the full accounts of British Celanese. Referring to current trading he says that there are definite signs of improvement, especially in the home trade and on the yarn export side. Accumulated stocks are being worked off and idle machinery is gradually being brought back into commission. He points out, however, that this improvement has not yet affected every section of the trade and that the increase in output is bound to be slow on account of the loss of labour which has inevitably occurred. In consequence, it must be some considerable time before the effects of the recession on the group's production and profits have been fully overcome. This seems to me a fair summary of the position and one which offers stockholders the hope of at least a moderate dividend during the current year. Mr. Whigham refrains from making any dividend forecast but promises to give more up-to-date information regard- ing the state of business at the company's annual meeting on November 11th. In the balance-sheet an interesting feature is the rise in stocks of £1,300,000 to £7,400,000, despite the writing-down of some £900,000 from the past year's profits. The group is thus shown to be carrying a substantial stock position even though there may be no further need for writing-down in the current year's accounts. British Celanese 10s. shares have latterly been a firm market around 24s. 6d., offering a return of 41 per cent. on the 11 per cent. dividend. I regard them as worth holding for a gradual recovery.
Calico Printers' Setback Those who have criticised the dividend policy of the Calico Printers' Association and other leading units in the textile trade during recent years of exceptional prosperity' may well alter their views in the light of the profit figures now being disclosed. For the year to June 30th profits of the Calico Printers' group are down to £297,000, against £1,071,000, and even this modest profit is seen to have been derived largely from a tax credit of £246,000. Again, although the charges for maintenance, depreciation and renewals before striking that profit are £61,000 up at £1,066,000, the tax provision is £1,975,000 down at £346,000. Against this background C.P.A. Ordinary stockholders must be well pleased by the board's decision to maintain the dividend at 121 per cent. The £1 units at 33s. 6d. are yielding 71 per cent. For the present they look to me fully valued.
Thos. W. Ward Dividend Among the companies who have dis- appointed City hopes of an increased dividend is Thos. W. Ward, the heavy engineers and ship breakers. Although the group's net profit for the year to June 30th has risen from £794,084 to £805,471, after providing £1,076,561, against £1,092,866, for taxation, a conservative board has decided merely to maintain the Ordinary dividend at 20 per cent. This group's fortunes are closely linked with trade activity in many fields, notably engineering, coal and coke merchanting, ship-breaking, cement making and machine tool manufacture. In all these branches prosperity looks reasonably well assured for some time ahead. One factor which may have influenced the board in its .dividend decision is that the company may shortly have an opportunity of buying back its Wolverhampton Steel and Iron and Birchley Rolling Mills subsidiaries now vested in the Iron and Steel Corporation. Against this must be set the fact that as a result of ploughing back on a large scale in recent years the company has built up a strong liquid position. Following the dividend announcement Thos. W. Ward £1 Ordinaries have fallen to 73s. 9d. At this level they offer a yield of about 51 per cent. on a dividend covered by an ample margin of earnings. In view of the company's strength in its particular trades and the promising outlook the shares are a good industrial holding.
Roan Copper Yield In paying a 45 per cent. dividend for the year to June 30th Roan Antelope Copper, which is among the large Northern Rhodesian copper producers, has fulfilled the highest market estimates. The dividend is being paid out of available net earnings of 56 per cent. which have had to bear an unusually heavy United Kingdom taxation charge, including Excess Profits Levy. Since the beginning of the current financial year the company has been receiving an additional £40 a ton for its output, and although operating costs are still rising and the labour position is difficult the indications are that net earnings will be reasonably well maintained this year. Even at a materially lower level of selling prices for copper this producer could make satis- factory profits. There is also the hope that the company will be allowed to move its seat of control to Northern Rhodesia, which would effect a considerable saving in taxa- tion. Like all commodity producers, Roan Antelope is operating in a speculative field, but at 14s. the 5s. shares, priced to yield 16 per cent., look under-valued.
Borneo Company's Outlook Shareholders in the Borneo Company, the Far Eastern traders in teak, rice, rubber and many other commodities, have been treated to the agreeable surprise of an increase in dividend from 81 per cent.—to which the payment was reduced under the threat of dividend limitation—to 211 per cent. This increase has been made on the strength of a rise in trading profit from £1,200,000 to £1,900,000 and is consistent with the transfer of very large sums to reserves. Altogether, nearly £600,000, against less than £350,000 a year ago, has been put to reserves, and the group carry-forward is up from £215,225 to £601,352. The higher dividend is thus very well covered, which is as it should be when one takes account of the uncertainties in the current year's outlook. In their review accompanying the accounts the directors emphasise that since March 31st, the balance-sheet date, - earnings in many sections of the business have been adversely affected by the steep fall in commodity prices, especially rubber. On the other hand, some of the subsidiaries, notably the motor and brick companies in the group, are still doing well. The con- solidated balance-sheet shows stocks nearly doubled at just under £3,700,000, while bank overdrafts have risen from £378,659 to £921,748. The company still retains, however, a substantial cash balance, so that there is no need, for the present, to look for any new financing. The Borneo Company's £1, Ordinary shares have risen two or three shillings since the dividend increase and are now quoted around 28s. 6d. On the 211 per cent. dividend they are offering the high yield of over 14 per cent. In my view they should be held.
Yorkshire Brick I discussed some months ago the recovery prospects of the 5s. Ordinary shares of the Yorkshire Brick Company, when they were standing in the market around 4s. 6d. Today, in spite of the excellent results which the company has just announced for the year to March 31st, the shares are down to 3s. 6d. At this level they seem to me to have speculative merits. Preference arrears have now been paid off and on the strength of the latest earnings figures there is now a margin available out of which an Ordinary dividend could be paid. The main difficulty, as the chairman points out, is the harsh incidence on this company of Excess Profits Levy. While this impost is in being the net distri- butable earnings are bound to be seriously affected, but the directors express the hope that if trading continues at its present high level for the rest of the year they should be in a position to recommend an Ordinary dividend when the next report is 'published. With the shares still standing well under par they should be worth putting away for better times.
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