FINANCE AND INVESTMENT
By CUSTOS
AFTER a somewhat shaky start, due to inter- national tension and various adjustments necessitated at the end of the last account of the Stock Exchange year, the markets brightened considerably in mid-week. The absence so far of any further grave incidents in Germany has helped sentiment, but the main influence has probably been a sur- prisingly good crop of dividends. These have covered a wide field, including life assurance, department stores; woollen tex- tiles, shipbuilding and special branches of engineering. Less satisfactory results have been reported by a few companies, but these have been outweighed innumber and import- ance by the favourable announcements. In terms of purchasing-power, net dividends are still considerably below their pre-war worth-a fact which is often disregarded by those who seek to make political capital out of dividend increases. The account which opened on Wednesday will last for three weeks. In these uncertain days it is hazard- ous to take any but tentative and very short- term market views. But the account has begun well ; and the outlook seems fair to good.
Pearl's Bigger Dividend When I mentioned Pearl Assurance Ordinary shares on this page two months ago, they could have-been bought at 181 to yield 5.7 per cent. gross on the 55 per cent. tax-free dividend. The dividend for 1952 has just been raised to 60 per cent. tax-free by a final dividend of 8s. tax-free, and the shares have risen to 21. I think they are still worth keeping. The present price is equi- valent to £20 12s. Od. on an ex dividend basis, so that the grois yield is over 51 per cent. Although Pearl transacts general insurance business, it is, of course, con- cerned mainly with life assurance ; and its industrial life business has grown in spite of the national insurance scheme. Current conditions, I think, favour life assurance concerns more than the fire and accident companies. The new anti-biotics have raised the average expectation of life ; and the life companies should have gained con- siderably from the investment of their new funds at higher interest rates. The Pearl announcement will encourage hopes of a larger payment on Prudential " A " shares now around 371. At this price they yield 5.15 per cent. gross on the 100 per cent. tax-free dividend for 1951, which was aug- mented by a special dividend of 2s. 6d. tax- free (12f per cent, net) per share. The yield makes no allowance for the special payment or for the inclusion of the final payment in the present price.
Swan, Hunter's Yield Another heartening announcement comes from Swan, Hunter and Wigham Richard- son, the famous shipbuilders, who are pay- ing a special Jubilee bonus of 10 per cent., as well as maintaining the dividend at 18 per cent. Net group profit, after providing some £250,000 less for tax-an unusual happening nowadays-is about £8,000 lower at £1,184,928. Earnings on the Ordinary stock are about 117 per cent., so that the combined dividend and bonus are covered by a handsome margin. The shares are now around 71s. 6d., at which the yield on the dividend alone is just over 5 per cent. The full accounts for 1952 are not yet available, but they will, I expect, show an even stronger position than at the end of 1951.
De Beers' Impending Accounts
After providing £1,825,003, against £2;600,000, for taxation, the preliminary figures of De Beers Consolidated Mines for 1952 show a fall of £246,156 to £10,092,399 in net profit. Allowing for the. fact that tax has already been deducted from investment income, these figures suggest a drop of £945,000 net in De Beers' mining profit and a rise of about 000,000 in net income from investments, the latter being due almost entirely to the higher dividend from Con- solidated Diamond Mines. De Beers' accounts for 1952 will be of particular inter- est, since for the first time they will embody consolidated figures for the group. My impression is that they will show earnings of at least 400 per cent. on De Beers Deferred shares to cover the 200 per cent. dividend, and that the consolidated balance-sheet may reveal surplus liquid assets of £35,000,000 or more. If the group's quoted investments, including the interest in Con- solidated Diamonds, are taken at market value, the net asset value of De Beers Deferred should be considerably more than the current price of 66s. 9d. ex dividend. At this price, allowing for Dominion tax relief, the gross yield is about 181 per cent. While the current year's earnings may show a decline, they should be reasonably good unless depression comes again to America. The 40 per cent. Preference £2 10s. Od. shares, incidentally, are now about 141, the yield being over 61 per cent.
Sinith's Dock Expansion
As I have pointed out in these notes, opportunities often occur to acquire shares on favourable terms free of the 2 per cent. transfer stamp when companies are making new issues. A current example is Smith's Dock, the North Shields firm of ship repairers and engineers, who are issuing one new £1 Ordinary share for every two held at a price of 33s. 6d. each. The new money is required for repaying bank overdrafts, financing the company's growing volume of work and the construction of the new grav- ing dock at North Shields, which will be the largest privately-owned dry dock on the north-east coast. The new shares are now being dealt in on the Stock Exchange, nil paid, at 5s. 71-d. premium, which means that a buyer is, in effect, giving 39s. 11d. for the new £1 Ordinaries. At this level the yield on the well-covered 121 per cent. dividend is nearly 61 per cent.; ignoring the extra 5 per cent. which was paid last year as a non-recurring bonus out of taxation sur- pluses. This company has a consistent record as a profit-earner and dividend payer, as well as a strong assets position. In the last balance-sheet net liquid assets amounted to over £1,800,000, which, after deducting the Preference capital, was equivalent to 32s. on the £1 Ordinaries. In addition, there were fixed assets of another £2,603,000, or the equivalent of another 48s. a share,
Bentalls' Good Results
Shareholders in department stores on the whole have had a much better year in 1952
than the retail trade figures and the decline in personal spending-power seemed to sug- gest. Bentalls, the enterprising Kingston-on- Thames store, report the remarkable ad- vance of £111,453 to £307,767 in group profit, while the group net profit, after providing £52,510 more for tax, is virtually doubled at £121,883, against £62,940. Improved earnings from the Worthing and Ealing stores have, no doubt, contributed to this excellent result. The shareholders' joy at these figures, however, was obviously tempered by disappointment with the divi- dend, which is only 31 per cent. higher at 831 per cent., and the 2s. Ordinary units receded on the news. Now quoted around 32s., these yield 5 per cent. Despite the modest yield, I do not think the units are overvalued, since the earnings on the Ordinary capital appear to exceed 210 per cent., so that the dividend is covered over 21 times. The directors' apparent parsimony may reflect some stringency in liquid resources arising from the growth of the business. If that is the explanation, the shareholders should receive their reward in due course.
Debenhams' Higher Payment Debenhams, the big retail and wholesale drapery combine, have fulfilled the best expectations by declaring an interim divi- dend of 121 per cent., against 81 per cent. a year ago. This seems to point to a rise in the total dividend for the year to 40 per cent. or 50 per cent., compared with 311 per cent. for 1951-52. On a 40 per cent. basis the 4s. Ordinary shares, now around 23s. 6d., would yield 6.8 per cent. There are hopes also that the Ordinary units, which were heavily written down many yeais ago, will be written up to 10s. by means of a capital bonus. This would seem to be warranted by the state of the reserves. Although the shares have risen 6s. 9d. from this year's low point, I think they are still good value.
A Cheap Textile Share Investors on the look-out for companies whose assets are substantially under-valued on the Stock Exchange might consider the £1 Ordinary shares of Copestake, Crampton and Company, the textile warehousemen and manufacturers. This company has an issued capital of £500,000, all in £1 Ordinary shares. In the latest balance-sheet, dated December 31st, 1952, net liquid assets, which include over £200,000 in cash and gilt-edged securities, exceeded current lia- bilities by just over £600,000, or the equiva- lent of 24s. a share on the £1 Ordinaries. In addition, there were fixed assets, con- sisting mainly of freehold property in London, standing in the books at a drastic- ally written-down figure of another £94,000. In the market the £1 shares are quoted around 12s. 9d., or much less than one-half of the asset value. It seems to me that here is a case where shareholders might welcome a bid at a price which would be attractive to the buyer but would still be substantially above to-day's market level. For 1952 the company paid a 5 per cent. dividend, which was not fully earned, but in his annual statement early last month the chairman pointed out that the fall in profits had been caused mainly by the lower prices of wool and cotton, which called for a heavy writing- down of stocks. He disclosed that forward orders for this year have shown an im- provement and described the prospects as brighter than at this time last year.
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