FINANCE AND INVESTMENT
By CUSTOS AFrest their virtually non-stop rise since the Budget industrial ordinary shares have at last begun to show signs of hesitation. Wall Street's sudden spasm of weakness has been the main unsettling influence this week, not so much because of its direct impact on London prices but because of the fear that behind the fall in New York there may be genuinely adverse factors. The explosive possibilities in the Persian oil dispute are obviously imposing a strong restraint on buying on both sides of the Atlantic ; so are the fresh uncertainties in the commodity situation. So far, however, the effect on the volume of selling has been confined to dis- lodging stock held by short-term speculators. Always providing the international political situation does not get worse, I take the view that after a pause for technical correction, the underlying forces making for firm prices will regain their sway.
World Bank Sterling Issue It is good to see London assuming its former role in the international lendin4 mar- ket, even though progress along these lines is necessarily somewhat pedestrian. Following the issue of a sterling loan for Norway, i underwriting is now taking place in the City in connection with an issue of £5 million 31 per cent. Stock to be made by the Inter- national Bank for Reconstruction and Development. The stock has been acqUired by the six leading London merchant banks and will be offered next week for sale to the investing public. From the broad financial standpoint the interesting feature of this operation is that this will be the first issue of World Bank Bonds in any member country outside the United States. There have been two small short-term issues in Switzerland but they were taken up by banks and Switzerland is not a World Bank mem- ber. What this issue will do will be to establish the World Bank's credit in London and so pave the way for similar further sterling financing operations as and when circumstances make them necessary or desirable.
As to the investment rating of the new 31- per cent. stock, which has redemption dates of 1966-71 and is being offered at a price of 97, the yield of £3 14s. 4d. per cent. to final repayment date is several shil- lings higher than can be obtained on a com- parable British Government stock. Although the World Bank's stock will not enjoy trustee security here it will have the advantage of being transferable free of stamp duty and will be redeemed by a generous sinking fund. The real security for the stock, apart from the other assets of the bank, is the uncalled 80 per cent. liability on the bank's share capital. I recommend a purchase to the safety-first investor.
Vickers Capital Puzzle Ordinary stockholders in Vickers, who may have hoped that the full report would bring some announcement of the board's intentions as regards any capital repayment, have been disappointed. The report itself
occupies 31 pages but the directors give no hint as to any plans they may have in mind for dealing with the £15,267,081 compensa- tion received for the group's nationalised iron and steel assets. One can only assume that the chairman intends to deal with this impor- tant matter in the course of his speech at the annual meeting. Meantime, it is clear from the accounts that, although the group has capital expenditure projects in view which run into several millions of pounds, holdings of cash and investments cover these commitments with an ample margin. Apart from the steel compensation money, hold- ings of cash and investments amount to nearly £16 million. Until the board's plans as regards any repayment of capital are known it is hard to form a view, at least of the early prospects of Vickers' £1 Ordinary units. For the long view, however, they do not look over-valued at 53s. 9d.
Brush Group Progress
Presented with admirable clarity the full accounts for 1950 of the Brush Electrical Engineering Company disclose substantial progress by this important group. It reached ,ast year the impressive figure of £19,995,431, an increase of nearly £4,500,000 on 1949. Rather more than one-half of the improve- ment was accounted for by the turnover of subsidiaries purchased during the year. New investments acquired included an interest of approximately 60 per cent. of the equity of the National Gas, Oil and Engine Company and all the shares of Hopkinson Electric, of Cardiff. In addition, interests of 76 per cent. were purchased in Vivian Diesels and Munitions and Vivian Engine Works, two Canadian companies, through which the group will develop engine manufacture for the North American market. Flanking the increase in turnover, consolidated profit, subject to taxation, rose in 1950 from £1,307,485 to £1,646,070. Net profit, after tax, was up from f653,878 to £667,369. It would have been easy, if the board had been so minded, to have increased the Ordinary dividend rate, even though the dividend was payable on an enlarged Ordinary capital. The board's decision merely to maintain the dividend at 10 per cent. and to put £400,000 to general reserve is readily understandable in the light of the group's financial position.
As the report points out: " The group's need for further new cash capital remains clear," especially as there are some con- siderable further commitments for capital expenditure. It seems to me to be a fair inference that before very long new financ- ing will be carried through to reduce bank indebtedneis and -infuse new permanent capital. As to the outlook, Sir Ronald Matthews makes it clear that, whereas at the beginning of last year the major problem was that 61 maintaining sales at a high level when the post-war sellers' market had come to an end, by the end of the year conditions had been reversed under the impetus of rearmament. The problem now is that of increasing manufacturing capacity still further to balance b strong order book. Quoted around 7s. 3d. Brush Electrical 5s. Ordinary units are yielding over 61 per cent. on a 10 per cent. dividend well covered by earnings. Even allowing for the fact that a new issue of Ordinary shares lies ahead, the units look a sound and attractive indus- trial investment.
Hambro's Bank Capital ' For the year to March 31st the full accounts of Hambro's Bank show fresh evidence of expanding business. The deposits total is up by over £15 million to a new record of £49,372,667 and acceptances have risen by over f3 million to £19,228,257. Loans and advances are also over £3 million higher at £12, 607,701. In his survey Mr. R. Olaf Hambro emphasises that, apart from expansion of business with the bank's Scandinavian customers, business relations have grown with Italian banks and industries. Net profit is up from £303,285 to £342,153. but following this conservative dividend policy the board are merely maintaining the dividend at 15 per cent. The transfer to contingencies reserve is raised by £40,000 to £225,000.
It is not surprising that following the pre- cedent set in recent years by many of the dis- count houses this acceptance bank is to raise fresh capital. To finance expansion "Hambros are issuing one million new fully- paid 11 shares at 45s each to the holders of the existing partly-paid shares. These, which have been bought in recent weeks on the strength and hopes of a good annual report are quoted around £11. This is cum the " rights " to the new issue. The equiva- lent ex-" rights " price is VW( and for the new shares, if they are to give the same yield of just over 41 per cent., the appropriate quotation will be 66s. 6d. It is not easy to value the equity of a bank engaged primarily in acceptance business, but I do not con- sider that the yield of about 4+ per cent. at the current level over-values the shares.
British Controlled Preferred
I have dealt on several occasions with the speculative merits of the Preferred shares of British Controlled Oilfields. During the past three weeks they have moved up sharply from around 13s. 3d. to 16s. 6d. on the strength of market reports of an early liquidation of the company. While I think the winding-up of this company's affairs will probably prove to be a lengthy process, the Preferred shares still look fair value for money for those who are prepared to take a long view. What gives the position interest- ing possibilities is the steady improvement in the value of B.C.O.'s large investment in Trinidad Petroleum Development. This holding of two million T.P.D. Sc. Ordinary shares is now worth close on £4 million in the market. After allowing for the repay- ment of B.C.O.'s loan stock there will be a substantial amount available for B.C.O. Preferred shareholders. Apart from the T.P.D. investment. British Controlled has the proceeds of its sale-of properties in Ecuador and has assets in Venezuela. What I expect is that at some early stage B.C.O. will sub- mit a scheme for reorganising its own capital on to a simpler basis, after which the T.P.D. investment will be realised and a substantial cash payment will be made. That would leave B.C.O. shareholders with a stake in the Venezuelan assets as their residual investment
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