COMPANY NOTES
By CUSTOS
THE stock markets began the week with 'an end of the account' feeling. The gilt-edged rally faltered, gold shares went easier and copper shares turned weak. Oils had boiled over and there had been no bonus forthcoming at the BURMAH OIL meeting. At the lower levels, however, the leading shares have been supported. The tendency to move from the capital goods shares into con- sumer trade shares is still in evidence. Outstanding was a rise of 2s. 3d. in GREAT UNIVERSAL STORES 'A' shares to 55s. on some special 'inside' informa- tion given by a new City editor in one of the Sunday papers. GUS will announce, it was said, another record profit—up £1 million at £20+ million—and a modest increase in the dividend from 62+ per cent. to 65 per cent. or 70 per cent. The current year's trading is said to be better than ever. Mr. Wolfson will celebrate the company's silver jubilee, it was suggested, with a 100 per cent, scrip bonus, making shareholders who had 100 shares twenty-five years ago the proud posses- sors of 1,754 shares. If this 'leak' is confirmed GUS will better MARKS AND SPENCER, whose chair- man, incidentally, has now explained that the phenomenal increase in profits last year was due to internal brain-work—a 'reorganisation of methods and procedures' offsetting the rising trend of costs. The improving market in consumer trade shares is fully justified by the latest Govern- ment statistics, which show consumer spending up 7 per cent, in the first quarter or 4 per cent, in real terms. The sales of durable household goods beat the average with a rise of 13 per cent, in money or 12.2 per cent. in real terms. This should consolidate the rise in HOOVER, now 43s., as well as in GUS. A welcome recovery was seen in tobacco shares with IMPERIAL strong at 40s. (up two or three shillings). If the cancer scare sub- sides on hopes that a cure or amelioration can be found by the tobacco company researchers, these shares should sell on a lower yield basis than 10 per cent. BRITISH AMERICAN TOBACCO are now quoted ex the capital bonus of one for three at 40s. 6d. for the bearer shares. If we scale down the previous year's dividend of 20 per cent. tax free to 15 per cent, tax free the gross yield would be £6 8s. 9d. per cent. If we allow an increase to 16 per cent, tax free, which seems to be fore- shadowed by the March interim dividend, the potential gross yield would be £6 17s. 6d. Inves- tors may prefer the safer refuge of BAT, with such a handsome yield.
If SHELL is accorded the position of first among growth equities, IMPERIAL CHEMICAL Would probably be classed second by most investors. The speech of the chairman, Sir Alexander Fleck, at the shareholders'• meeting provided all the arguments needed for that classification. Growth follows from the expenditure of capital in the development of new products or the extension of old. The group has spent £267 million on new fixed assets in the UK since the end of 1945 and of the £44 million sanctioned in 1956 just over half is being spent on manufacturing fifteen new products which were either not on the selling range in 1945 or were being produced only on the pilot scale. Consideration is now being given to the extension of capacity in products for which a rapid expansion in demand can be foreseen, such as Terylene, ammonia fertilisers, the new plastic polyvinyl chloride, etc., Heavy expendi- ture on research is always yielding new products: Sir Alexander mentioned the discovery of the new inhalant anaesthetic 'fluothane.' About £50 million is to be spent this year on capital developments. The board tries to maintain a fair balance between the distribution of profits as dividends to stock- holders, who can reasonably expect to find further Money for development, and the retention 'a profits for reinvestment. Unlike Mr. Gaitskell Sir Alexander finds the equity shareholders perform- ing a very useful function. Last year's slight set- back in profits—from £56f to £53f million before tax—was partly due to the price standstill policy which ends on June 30. In future the company will adjust the price of each product up or down as demanded by cost and market conditions. Turnover, which rose 6 per cent, last year, is running higher this year and the shareholders can probably look for better results. At 43s. 6d. to yield 4.55 per cent. on the 10 per cent. dividend, which was covered about 2.9 times, the shares are a fairly priced growth equity and if it were not for the threat of nationalisation they would sell on a much lower yield basis. Sir Hartley Shaw- cross and Mr. Richard Stokes do not exaggerate when they say that nationalisation would ruin ICI, for it would no longer be able to share patents with the American industry or attract the bright young chemists from the universities who go to build up the brilliantly successful managerial team.
ROLLS-ROYCE iS another high-ranking growth equity but much more specialised. New develop' ments cover projects like rocket motors and the installation of nuclear machinery in a submarine. Government contracts are, however, declining and the company will eventually be dependent On A the civil aircraft market. In spite of the intense competition from America the company holds over one half of the world's orders for civil gas' turbine aero engines. The present backlog of firm orders stands at no less than £100 million. Total sales last year were £80 million, of whiel1 the Government accounted for no less than 5r' per cent. In his annual statement Lord Kindersle) warned shareholders that the increasing turnover, which is fortunately attributable to the commer cial business, was not at present being matched by a corresponding increase in net profits. Ha' ever the company has increased its appropriations for depreciation and the ordinary dividend Of 20 per cent. (against 17+ per cent.) is covered by earnings. The company issued recently two shares for every seven at 95s. and the old now stand at 118s. 9d. to give a yield of- 3.4 per cent. For the short view investors are probably right to prefer the consumer trade shares with higher yields, btil for the long view I would sooner hold the lo'' yielding ROLLS-ROYCE, SIMON CARVES, II AO watcHisoN, etc., and back the companies orl which the industrial survival of this countri really depends.
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