FINANCE AND INVESTMENT
By CUSTOS
THERE is still very little give in markets, not so much because of any insistent pressure to buy, but simply on account of the wide- spread reluctance to sell. I am speaking, of course, of the equity share groups and not of fixed interest stocks, although even gilt- edged have succeeded this week in staging a modest come-back. Oddly enough, the recovery in gilt-edged which, I must emphasise, is still quite tentative, has been based—apart from purely technical factors— on a revival of City talk of the possibility of a revaluation of the pound. In a decidedly tendentious survey of the inflation problem issued by the Economic Commission for Europe the case has been argued for an appreciation of European currencies, and especially sterling vis-ci-vis the dollar. I doubt whether it will carry much weight with the British Treasury. While nobody doubts that sterling was devalued to an unduly low level in September, 1949, the risks and the general disturbance to international trade involved in an upward move seem to me to outweigh any possible advantages. Gold shares would, of course, be vulnerable to any fall in the sterling price of gold and have been a nervous market this week, but they should soon be due for a recovery. As to the general outlook for markets, much now depends on the international news. If, for example, the war in Korea were brought to a speedy end, and no fresh war took its place, investors might turn away from shares with a commodity flavour and take a more hopeful view of gilt-edged. I doubt, how- ever, whether one need look yet awhile for any serious slide in equity shares as a whole.
J. & P. Coats Policy Among the disappointments in recent dividend announcements has been the 'decision of the directors of J. & P. Coats, the Paisley thread manufacturers, merely to maintain the Ordinary payment at 12} per cent. This is the rate which has been in force since 1946, and as the dividend has in recent years been covered by a wide margin of earnings, stockholders have naturally expected that the dividend thaw would bring them at least a modest increase in the return on their investment. Against the background of the profits for 1950 and the immense strength of the latest balance-sheet the board's decision merely to maintain the divi- dend looks the reverse of generous. Trading profit and sundry income was up last year from £10,239,506 to a new record of £12,530,987. Group profit, after taxation, rose from £6,193,187 to £9,544,731. While it is true that these profits were inflated to the extent of about £2,800,000, against £2,250,000 in 1949, by an exchange gain arising from the conversion to sterling of stocks carried by foreign subsidiaries, that does not look in itself an adequate reason for not stepping up the Ordinary dividend. To see the matter in true perspective one needs to relate the £986,000 net which goes to the Ordinary stockholders to the addition made of just over f5 million to the balances carried forward in the group. The board has also allocated £1,161,852, against £2 million, to general reserve. In the accounts Mr. Robert Laidlaw, the J. do P. Coats chairman, and his co-directors do not voushsafe any explanation of their ultra-cautious distribution policy, although they will doubtless defend their decision*1 the annual meeting on June 21st. Meantime, the £1 Ordinary stock units have fallen back to 63s. On the 12} per cent. dividend they are yielding just under 4 per cent., which is rather less than can be obtained on other " blue chip " industrial equities. In this case, however, the dividend is covered by such a large margin that 1 Mould hesitate to recommend selling.
Guest, Keen Again There is nothing in the full report of Guest, Keen and Nettlefolds to suggest any need for revising my opinion that the £1 Ordinary shares are still good value for money around the current level of 60s. The yield, admittedly, on the 14 per cent. divi- dend is only a little over 4f per cent., but the prospects look good. Mr. J. H. Jolly and his co-directors have proved themselves an, enterprising group of industrialists, and having disposed of the iron and steel interests at what look reasonably satisfactory prices I think they can be relied on to make effec- tive use of the proceeds. Stockholders can already thank the board for their prompt action in disposing of most of the Iron and Steel stock received as compensation for the nationalised assets and re-investing the money in a much shorter-dated gilt-edged security. This large-scale switch has saved the company a good deal in the clatter of capital depreciation and affords a clear indi- cation that the Guest, Keen board is of the kind which makes up its mind quickly and acts on a view. As for the chances of any further repayment of capital over and above the 5s. a share which Ordinary stockholders will receive in the near future, I do not rate ' them very high. As Mr. Jolly reminds stockholders, the group has very large capital commitments, and the directors are rightly keeping in mind the possibility of an unscrambling of steel nationalisation.
Morris Motors Expansion Even making full allowance for Lord Nuffield's frank warning that the 1950 results have been helped by abnormally . favourable factors, the figures disclosed in the full report and accounts of Morris Motors reflect expansion on impressive lines. Group profit was almost trebled last year at £7,136,038, against £2,631,426. Sales rose from £40,741,778 to £60,980,000, with export turnover amounting to nearly £39 million. Lord Nuffield emphasises that out- put reached a volume which had not pre- viously been approached, but he also records that this buoyant trend underwent a change early this year when sheet steel supplies were cut by 20 per cent. and other materials became restricted. Provided these problems on the materials side can be surmounted, there seems little doubt that the company, can look forward to good figures for 1951. Orders in hand are ample for last year's out- put rate to be maintained. As usual, the balance-sheet shows a strong position,
although there are indicatinns of some pres. sure of increased business on liquid resources. Morris Motors' 5s. Ordinary shares at 40s. are yielding nearly 6} per cent. less tax on the 27 per cent tax-free dividend. They are a good holding in the motor car field.
Selection Trust Attractions
As I forecast when discussing the merits of Selection Trust 10s. Ordinary shares on
February 2nd, this company has substanti- ally increased its dividend for the year ended March 31st. On the strength of a sharp rise in earnings the dividend rate has . been raised from 20 per cent. to 321 per cent. and the higher rate is covered by available net earnings of just under 70 per cent. The 10s. shares, which on February 2nd were quoted at 47s. 9d., have moved up to 50s.—a modest improvement—and one which in my view does not do full justice to the position disclosed in the latest accounts.
Dividend and interest receipts are shown to have risen from £731,000 to £1,052,000, an increase of over 40 per cent. Profits from sales of investments in the past year were also substantially higher. In consequence, after allowing for other income items and charging expenses, profits, before tax, are up from £864,000 to £1,319,000, and net profit is over 60 per cent higher at £784,000, against £488,000. On the capital side the outstanding feature of a strong balance-sheet is the sharp increase in the surplus of liquid assets. Whereas at March 31st, 1950, this surplus was well under £2 million, it is now shown to be over £21 million. The current assets include nearly £1,700,000 in gilt-edged stocks aind just under £1,200,000 in cash. The attraction of Selection Trust as an investment medium is that it gives a hplder a stake in the copper, lead, zinc, gold, dia. mond and oil industries. At the present price of 50s. the yield is the attractive one of 6} per cent.
'-A Good Industrial
For investors who like to combine a high income yield with a prospect of capital appreciation the 5s. Ordinary shares of Stimpson Leathers look a promising pur- chase around today's price of 14s. At this level the yield on the 25 per cent distribution, which has been forthcoming since the under- taking became a public company in 1949, is fif per cent., which is substantially more than can be obtained from most other shares in the same industry. The 25 per cent. dividend was covered by available net earnings of 78 per cent. This company carries on the business of chrome tanners, leather manu- facturers and merchants. It has alert and experienced management and strong City backing on the financial side. The last balance-sheet, dated September 30th,. 1950, showed that net current assets amounted to £668,599. Stock accounted for just over £400,000 and the company held cash and Tax Certificates of over £300,000. As every- one is aware, leather prices are now at abnormally high levels, but there are no indi- cations of any serious break. World demand continues to absorb all available supplies and rearmament will add strength to the demand side. In his annual statement made in January the chairman disclosed that the company had opened the current year under very active conditions and that turnover for the first two months had established a record.
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