FINANCE AND INVESTMENT By CUSTOS Avail a surprisingly good innings
the market in industrials and gold shares began to show signs of fatigue in mid-week. This was due partly to the slowing down of tax collections revealed in the weekly revenue figures and partly to a feeling that some technical correction was overdue. Gold shares:have suffered further from fears of a labour shortage. Since the end of 1952 the Financial Times Industrial Ordinary share index has moved up from 115.8 to 123.2, while Gold Mines have risen from 94.56 to 101.69, with the Gold developers up from 75.54 to 88.76. While tax revenue has come in well this year, it looks as if there will be a final overall deficit of at least £250 millions ; and this prospect has chilled hopes of tax con- cessions. Mr. Butler's major problem is how and where to use the axe when so many items of expenditure, such as defence, are virtually untouchable. By curtailing subsi- dies and ending the rationing of certain foods, by taking certain items of capital expenditure out of the Budget, and by a general pruning of staffs in Whitehall, he may be able to squeeze out enough to meet the most urgent claims for tax relief. That seems to be as much as we can hope for at this stage. Meanwhile, there is a fair chance that sterling will remain firm until the Budget and possibly longer and that trade may improve further. The weakness of commodities at a time of unprecedented industrial activity in America, however, has an ominousring, and the chronic inadequacy of savings may restrain market exuberance. But the fact that shareholders are now asserting themselves and asking for more is likely to influence dividend policy, and this should help sentiment in industrial shares.
Harrods (Buenos Aires) Prospects . Since the signing last Deceniber of the ;Anglo-Argentine trade agreement the shares of British-owned companies in the Argentine have been a subdued market. The last pact contains no real assurance of fair compensation for the various utility com- panies, and there are no arrangements for the early resumption of remittance of profits to this country. It is against this background that one needs to consider the latest accounts of Harrods (Buenos Aires), the British- owned stores undertaking. The report discloses that during the second half of the company's year, which ended on August 31st, 1952, there was a heavy fall in sales, and since this has continued it is doubtful whether the group- has done more than cover its expenses during the first half of the current financial year. Mr. A. Faller, the chairman, pins his hopes on the satisfactory wheat and maize crops, which should be reflected in improved spending power. Mr. Faller makes it plain that no remittances of profits will be received this year, but the Argentine Government will consider the question of resuming remittances in 1954. Fortunately, the company has substantial liquid balances available on this side, out of which dividends can still be paid. The directors are maintaining the regular payments on the 4 per cent. and the 8 per cent. £1 Preference shares for the year to August 31st, 1953, but Mr. Faller refrains from any forecast of payments in the more distant future. He also discloses an impor- tant concession which Harrods (B.A.) have obtained from the British Inland Revenue authorities. While the law, as it still stands, requires that all profits, whether or not they are capable of being remitted, attract U.K. taxation, the Inland Revenue have agreed that no U.K. tax will have to be paid on profits earned in Argentina, so long as remittances are unobtainable. This con- cession, no doubt, has prompted the board to continue the regular service of the Preference capital for at least another year. Since the issue of the accounts the 8 per cent. Cumulative £1 Preference have eased slightly to 8s. 6d., at which they yield not far short of 20 per cent. In view of the group's recovery potentialities in anything like reasonable trading conditions, I think these shares should not be sold.
Ilford's Record Turnover From the latest results of Ilford, the photo- graphic material manufacturers, it is apparent that earnings are beginning to reflect keener competition. While the company achieved a record turnover, increased costs have left their mark in a slight fall in trading profits from £1,321,636 to £1,239,557. Once again the company puts £150,000 to replacement of fixed assets reserve. It also allocates an aggregate sum of £200,000, against £225,000, to general reserve and contingency reserve. The 15 per cent, dividend is covered by a comfortable margin, but the 5s. Ordinary shares have fallen slightly in the market to 14s. At this level they offer the rather low return of about 51 per cent. They appear to me to be fairly valued for the moment, even allowing for the company's established position in its industry and the progressive policy pursued by the board: Wookombers' Recovery Preliminary figures issued recently leading textile companies show clearly that the woollen industry, which was the first to feel the effects of consumer resistance, is also the first to emerge from the depression. Wookombers, for example, whose net profit was halved in 1951, now reports a rise of £54,475 to £166,828 in net profit, after providing £325,418, or £76,000 more, for tax. Earnings on the £1 Ordinary units are 25.1 per cent., which provides adequate cover for the 1952 dividend of 16 per cent., compared with 131 per cent, for the three preceding years. The stock rose to 51s. 3d. on the results, and at this price the yield is 61 per cent., which seems to be about right. Woolcombers has a much steadier dividend record than most companies in this industry, possibly because its activities include the manufacture of a wide range of toilet preparations made from lanolin, which is derived from wool grease.
High Yielding Cotton Equity Cotton textile concerns, however, which were less severely hit than woollen firms in 1951, are now revealing the full impact of the steep drop in demand. Net profits of Ashton Brothers, a vertical spinning, weav- -.frig and merchanting concern with a good record, have slumped from £240,132 to £37,403 after tax, but the total distribution for the year is maintained at 20 per cent., including a 5 per cent. bonus. Since the interim, declared in June, was halved at 2/ per cent., earnings in the latter half of 1952 were probably better than in the first half. The severe fall in earnings, no doubt, is largely due to the writing down of stocks, but the preliminary figures suggest that the £415,000 stock depreciation reserve may have been left intact. Although net earnings on . the Ordinary shares are down sharply, the 20 per cent. distribution is covered by earnings of 30 per cent. ; and if, as I surmise, profits picked up in the latter half of the year, the company should by now be recovering from the worst phase of the depression. Quoted around 37s. 6d., the shares yield 101 per cent., and I should not oppose a purchase at this price. The full accounts are not yet available, but I think they are likely to show a net asset value of about 120s. a share, or more than three times the current -price.
West Rand Investment One of the safest ways of investing in gold mines is to buy shares in one of the leading holding companies, such as West Rand Investment Trust 10s. shares, commonly known as i" Writs." Among the holdings shown in the last balance-sheet were 2,600,024 Blyvoors, now standing at 44s. 9d.; 1,235,058 Doornfontein (27s. 6d.); 1,000,067 West Driefontein (136s. 3d.) ; 1,011,502 Western Reefs (47s. 6d.) ; 1,227,935 West Witwatersrand (46s. 41d.) and various smaller holdings. All these are in the Far West Rand area, and two of them-Blyvoor and West Driefontein-have the richest ore of all the proved mines in South Africa. At current prices, these holdings have a market value of £20,400,000, which gives" Writs" a break-up value of 45s. 9d. a share,.com- pared with the current price of 35s. The holding in West Driefontein alone is worth 16s. 3d. for each " Writs " share. This mine is now showing working profits at an annual rate of £3,500,000, but has not yet paid a dividend. On the latest dividend of 13/ per cent. " Writs" yield only 41 per cent. after allowing for Dominion tax relief at the full rate, but the return should rise considerably when the investments in West Driefontein and other mines begin to pay.
Strathmore's Possibilities More speculative, but probably offering greater possibilities of appreciation, are the 5s. shares of Strathmore Consolidated Investments, now around 35s. 3d. The company is in Colonel Jack Scott's New Pioneer group, and its most promising hold- ing is a 30 per cent. interest in the Ellaton Gold Mining Co. If the value of Ellaton, ex- cluding the loan, is put at £6,000,000-which is low compared with the O.F.S. mines - Strathmore's interest should be worth £1,800,000 or 26s. 6d. a share. One unofficial estimate I have seen puts the value of this interest at 35s. a share. In addition there are quoted investments and other assets which should be worth not less than 20s. a share. Ellaton is expected to start milling towards the end of this year, and since the uranium- bearing Vaal Reef will be worked, it may well join the ranks of uranium producers. It is these possibilities which make Strathmores an attractive speculation around 35s. 3d.
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