FINANCE AND INVESTMENT
By CUSTOS IN unusually inactive markets the process of consolidating the recent recovery in prices continues. It is being helped by the im- provement in investment sentiment which finds expression in a widespread reluctance to sell and by some encouraging profit and dividend announcements from companies engaged in heavy industry. It would be Wrong, however, to imply that consolidation is an easy process. As everyone is aware, there are still large demands for new capital, both by Governments and industry, to be met and when these demands materialise there will be pressure on limited investment resources. Nor have the problems of Britain's declining export trade or on the domestic wages front been solved. Markets must therefore be regarded as being deli- cately poised and even a modest tilt of the balance towards buying or selling could affect prices quite disproportionately. From now on the trend will be determined by the actual news rather than investors' hopeful or pessimistic anticipations of events.
Distillers Position It emerges quite clearly from the review of Sir Henry Ross at the annual meeting of the Distillers Company that the board's decision merely to maintain the 224 per cent. dividend on the Ordinary stock has been influenced by the trading outlook as much as by the need to conserve resources in view of the steady pressure of increasing business on the group's working capital. Sir Henry makes it plain that while the potable branch of the company's business does not show any material change, the industrial group has reflected sharply the prevailing economic conditions, and the heavy recession which has already taken place is bound to be reflected in the results of the current financial year. On the plastics side, it seems, there has been a material setback, and difficulties have also arisen in the industrial alcohol branch. It is here that the board's policy of setting aside substantial sums to stock reserves is likely to prove its worth. Sir Henry emphasises that the Distillers group intends to apply reserves in writing down the cost of stocks in order to reduce selling prices at the earliest possible opportunity. In relation to the current rate of dividend this change in the industrial scene should not, of course, be taken too seriously, in that the 224 per cent, rate is well covered and, with its interests widely spread, the group is not likely to suffer any really sharp setback in earnings. It is worth noting that in his statement the chairman records his view that a general improvement in the industrial branches may be looked for in the near future. The 4s. Ordinary units have come down from 18s. to 17s. 3d. and are now yielding close on 5 per cent. I still think they can be regarded as a sound industrial equity investment.
G.U.S. Finances There is nothing in the full accounts of Great Universal Stores to suggest any need to revise the view I expressed on August 29th that the 5s. Ordinary shares of this company around 15s. 9d. to give a yield of 8 per cent. are attractive. Although Mr. Isaac Wolfson, the Great Universal chairman, seems at pains in his comprehensive annual state- ment to defend the group's finances against any criticisms, either real or imagined, the figures he brings forward are impressive. In face of difficult conditions the group has achieved a 15 per cent. increase in its retail sales and has reduced its net indebtedness to the banks. In the consolidated balance- sheet cash appears at the substantial figure of over £4 million, and as to the formidable total of £31,390,165 of hire-purchase debtors, Mr. Wolfson points out that these amounts are owing for essential goods by some 1,800,000 customers, an average of £17 each. As in former years, bad debts remain negligible. On the question of the trading position and prospect Mr. Wolfson shows himself as welcoming the recent reduction in price levels, which he regards as part of " alealthier situation." He fore- casts an improvement in results from the important Canadian subsidiaries and dis- closes that retail sales for the group as a whole for the current year to date are run- ning ahead of last year. I think shareholders are justified, therefore, in budgeting for at least the maintenance of a 25 per cent. dividend rate on the larger capital now ranking, even after making due allowance for the group's liability to Excess Profits Levy. The dividend was covered eight times over by last year's net distributable earnings and represents only about 3 per cent. in relation to the total net assets employed in the group. The report records that during the year the expansion policy of the group slowed down considerably and existing interests were consolidated. This is a policy of which stockholders will heartily approve.
Gestetner Outlook Although there was no check during the year to August 31st to the expansion in sales of Gestetner Ltd., the duplicating machine manufacturers, there was a moderate set- back in profits. Trading results were down from £1,200,000 to £1,151,000 and the net figure, after tax, was lower at £341,000, against £368,000. In his statement the chair- man explains that during the year costs of manufacture, raw materials and distribution all increased, and since the company did not raise its selling prices the effect was to depress profits. In the record total of sales exports. again played an important part and good business was done with the all-important American market. Although the company is taking power to increase its authorised capital by £1 million by creating four million new Ordinary 5s. shares, the directors emphasise that there is no present intention of making any new issue. New financing certainly does not appear to be an early probability, in the light of the position dis- closed in the consolidated balance-sheet, which shows cash, replenished by last year's Preference issue, about £530,000 up at the satisfactory figure of £1,019,225. The 15 per cent. dividend, which is the exact equivalent of the 18f per cent. paid before the distribution last October of the 25 per cent. scrip bonus, is amply covered by the latest net earnings. The 5s. Ordinaries are quoted around 14s. 6d., yielding about 54 per cent. In view of the increasing com- petition in the export field I regard the shares as fully valued for the present. Wolfram Share Yield City expectations that Beralt Tin and Wolfram, who produce tungsten ore in Portugal, would report a sharp.increase in profits for the year to March 31st have been exceeded in the event. The rise in earnings proves to be quite spectacular, the prelimin- ary statement showing profits of £2,174,967, after providing £35,995 for depreciation, whereas for 1950-51 the profit, after charg- ing £29,562 for depreciation, was £892,294. Taxation has taken its toll of the additional earnings at £1,336,570, but net profits are more than doubled at £838,000, against £358,000. On the company's issued capital of £331,000 these earnings are equivalent to about 480 per cent., less tax, so that the doubling of the distribution at q00 per cent., against 100 per cent., is still cohsistent with conservative financial policy. As mulch as £450,000 has been transferred to general reserve and pension fund. During the year to March 31st the company benefited from the high price of wolfram, which averaged about 500s. a unit, and from a considerable increase in its output of this metal, which amounted to 2,400 tons, against 1,760 tons. Wolfram is not now fetching quite so high a price, but shareholders will note that results for the current year to date continue satisfactory and that the company is now deriving benefit from the forward contracts at fixed prices. The directors also disclose that in connection with the opening up of a new area a further fixed-price contract has now been concluded with the United States authorities for five years, starting on October 1st, for the supply of approxi- mately 2,500 tons of wolfram over the period. Since these results have been announced Beralt 5s. units have risen from 26s. 9d. to 30s. 6d., which still includes about 3s. 6d. net of dividend. The shares are therefore priced to give the extraordinarily high yield on the last dividend of about 38 per cent. I think they are a promising speculative purchase.
Two Cinema Shares A year ago I drew attention to the merits, as a high-yielding cinema speculation, of the 6s. 8d. Participating Preferred Ordinary shares of General Theatre Corporation, which is a subsidiary of Gaumont-British in the Odeon group. The latest results just announced for the 53 weeks to June 28th are well up to expectations. Trading profits show practically no change at £210,710, but the dividend is being increased from 164 per cent. to 23 per cent. Quoted around 10s., the shares are now giving the high yield of over 15 per cent. I see no reason why they should be sold. -Another high- yielding share in the film industry which seems to me to have a chance of capital appreciation is the £1 6 per cent. Participat- ing Preference of British Lion Studio, whose financial position I analysed last week. This company has brought the Preference dividends up to date by payment of two years' dividends out of last year's profits, but the shares are still quoted around 8s. 6d. At this level they offer a yield of about 14 per cent., which seems to me to do less justice to their merits. When this company 'has carried through the projected improve- ments at its Shepperton studio it will effect a substantial saving in overheads, which should greatly improve the earnings pros- pects.
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