FINANCE AND INVESTMENT
By CUSTOS
As I suspected, markets have needed very little time in which to shake free from the momentarily depressing influence of the sheet steel cuts. Buying, much of it of the solid investment type which takes stock right out of the market, has been resumed over a broad front, and with few investors disposed to sell has brought a fresh rise in prices. After approaching the 1950 peak.on three occasions without breaking through, the Financial Times index number of industrial ordinary share prices has at last moved into new high ground and is getting within striking distance of the previous peak reached in February, 1949. It may well continue to move up under the sheer pressure of money unless some really depressing news halts the " bull " market in its tracks. What is in one sense impres- sive and in another rather frightening is the breadth of the market rise, which now covers industrial equities, most of the commodity groups, gilt-edged stocks and gold shares. Obviously, inflation is not equally good for all these groups, but prices are behaving as if it were. The inference is plain—that weight of money is lifting all security values. How long it will continue to do so depends on many factors, not excluding the international political news and the coming Budget. While I am prepared to see markets active and, on the whole, moving ahead for some little time, 1 also expect to see the Budget shadow make its appearance in Throgmorton Street rather earlier this year than last.
Linoleum Share Deal
Some very large financial transactions take place in these days outside the normal Stock Exchange channels. Last week it was revealed that practically the whole of the shareholding of the late Countess Peel in Jas. Williamson and Son, the linoleum manufac- turers, had been sold through Morgan Grenfell and Company to insurance companies and other financial institutions. As this hold- ing comprised over one million of the company's 10s. Ordinary stock units, which are now quoted in the market around 18s. 6d., it may be assumed that the amount involved in this deal was some- where in the neighbourhood of £900,000. Accompanying the announcement was an intimation that " it is not anticipated that any sizeable amount of stock will be resold on the Stock Exchange." This means that the insurance companies and other institutional buyers are well satisfied with their purchase and intend to keep the
stock as an investment. •
The company's financial record and position in the linoleum industry certainly justify high investment ranking. Since Jas. Williamson became a public company in 1947 it has paid a 10 per cent. dividend out of annual earnings which have ranged between 23 per cent. and 28 per cent., putting back large sums to reserves. Capital expenditure on additions and improvements to buildings and plant has exceeded £1 million in the past two years, with obvious implications as regards productive capacity and competitive efficiency. The 10s. units were offered to the public under the best City auspices at 21s. in 1947. It seems to me that a recovery to that level from today's price of 18s 6d. is not improbable. The interim dividend on account of 1950 was maintained last October at 21 per cent. and the final payment is due about the middle of next month. If the recently announced tesults of Michael •Nairn and Greenwich, another leading linoleum manufacturer, can be taken as a guide, Jas. Williamson's coming accounts should make satisfactory read- ing, and an increase in the final dividend from 74 per cent. to 10 per cent. should be quite on the cards. If the total is raised from 10 per cent. to 124 per cent. on the strength of good earnings figures, the 10s. units should improve quite sharply in the market.
Woolworth Profit Record City forecasts of record profits and a good dividend from F. W. Woolworth and Company have been amply fulfilled in the event. From the preliminary figures it is apparent that last year's trading profits must have reached a record figure at something between £11,500,000 and £12 million. Net profit was up from £5,020,060 to p5,355,272 and was struck after charging £6,413,138 for taxation,
tgainst a comparable tax charge of £5,802,247 in 1949. Evidently his progressive company's policy of expansion is still bearing good fruit for the stockholders, and Mr. B. E. Uffindell and his to-directors have not hesitated to pass on some of the benefits of bcreased earnings to the holders of the £15 million of Ordinary Wock. Following the 15 per cent. interim announced last June, the :Psts final Ordinary dividend is 274 per cent., bringing up the total to 424 per cent. This compares with 70 per cent. for 1949, but in that year the Ordinary capital was only £7,500,000. It was subsequently doubled to the present figure by the distribution of a 100 per cent. free scrip bonus. It follows that th1 421 per cent. now being paid on the doubled capital is equivalent to 85 per cent, on the capital in issue in 1949. Nobody could quarrel with the board's dividend decision, which is fully justified by the latest profit figures. Once again large sums are ploughed back into the business, £500,000 being allocated to Development Reserve and £750,000 to General Reserve. There is £250,000, against £200,000, for Staff Benevolent and Pension Fund. The board is also increasing the carry-forward
by over £200,000 to just under £1,500,000. Following the profit and dividend announcement, the 5s. Ordinary units, which have been a
favourite purchase with speculatively-minded- investors in recent
weeks, have fallen back slightly from 46s. 3d. to 45s. 6d. This does not reflect any _real disappointment with the results, but merely profit-taking now that the good news is out. At today's level the 5s. units are offering a yield of roughly 41 per cent. They still constitute a first-class industrial holding.
Rubber Share Recovery After the setback in the closing weeks of last year rubber shares are at last beginning -to stage a cautious recovery. The main influences are a rather less apprehensive feeling about the situation in the Far East, the continued strength of the commodity in Mincing Lane and the tangible results of better times for rubber companies in the shape of spectacular increases in profits and dividends. Among the recent dividends which have impressed the market are those of Golden Hope Braunston (Malay) and Harpenden (Selangor). With a second interim of 10 per cent. Golden Hope, a first-class company, has already paid 20 per cent. for the year end- ing in February. If, as seems probable, the final is 10 per cent., the total will be 30 per cent. Yet the £1 shares can still be bought around 29s. 6d. Braunston (Malay) has paid 10 per cent. for the year to September 30th, 1950, when its average selling price was probably about Is. 6d. a pound. The company must now be earn- ing, after allowing for duty, at least 30 per cent. The £1 shares are now 15s. 3d. Harpenden (Selangor) has just announced a 10 per cent. interim for the year which ends in March, which indicates a total of at least 20 per cent. The £1 shares stand at 18s. In all these cases 1 regard the shares as substantially under-valued.. Clearly, they are not without their risks, but for those who are hopeful about the Far East they have merit at today's prices.
A Cheap Trust Stock
Without attracting much interest, several investment trust com- panies have announced moderate increases in dividends in recent months. These trusts, whose income is derived from a large portfolio of investments, gain the benefit of any general tendency to raise dividends after a considerable time-lag. It is also clear that the trusts' distribution policy is influenced not merely by the actual income for a particular year, but by the income outlook. Recently increased distributions have reflected the fact that previous rates were covered by a generous margin, and also indicated the boards' confidence that revenue in the years ahead is reasonably well assured. From the investment and speculation standpoint, many of these trust stocks, quoted well below break-up values and offering good yields on dividends, have obvious attractions. A case in point is the Equatorial Trust, whose £1 Ordinary units are now quoted around 19s. This trust, which has a well-spread portfolio with a rather higher than average proportion of rubber shares, which account for just over 15 per cent. of the total, has been paying a 4} per cent. dividend for each of the years 1947-1949. Earnings have been gradually increasing, moving up from just over 6 per cent. in 1947 to over 74 per cent. for 1949. The dividend for 1950 is due to be announced within the next few days, and it will be surprising if it is not increased. On general indications it would seem a conservative guess that the rate will be put up to 51 per cent. If this forecast is fulfilled, then the £1 units should move a shilling or two over par. At December 31st, 1949, the £1 units had break-up value of about 22s. 6d. That figure must be substantially higher today.
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