FINANCE AND INVESTMENT
By CUSTOS
FROM apprehension to hope—and then back to apprehension—such has been the chang- ing mood of the investment world in recent months. At the moment there is a mild access of confidence, based mainly on hopes of some genuine expansion policies emerging from the Commonwealth conference and reports of better times in the retail and textile trades. As I see things, I still lean towards the view that we' are in a mildly deflationary phase in which gilt-edged stocks are likely to fare better than industrial equity shares. There are always " special situations," ifif course, in which equity shares look cheap, and there may well be scope for-further rises in Japanese bonds and " liquidation " shares. 1 doubt, however, whether, at this stage, any rise in equities which is broadly based could get very far. We shall know about the prospect here when American policies begin to take shape. Meantime, caution should remain the investor's watchword.
B.S.A. Dividend City hopes that Birmingham Small Arms, whose engineering business is widely based on the needs of peace and war, might increase its dividend have been amply ful- filled. On the strength of a further sub- stantial increase in earnings, achieved in face of rising 'hosts, the Ordinary dividend is up from 10 per cent. to 121 per cent. Further expansion in the home and export field is reflected in combined trading profits for the year to July 31st of £3,100,000, against £2,800,000. Naturally, the greater part of this increase has been absorbed in the pro- vision for Income-tax, Profits Tax and Excess Profits Levy, which is roughly £100,000 higher at the formidable total of £1,520,309. Consolidated net profit has thus come out at £805,711, against £780,338. In the light of these figures it appears that the 121 per cent. dividend rate is covered over four times. Following these results the £1 Ordinary units have risen. ls. 6d. to 38s. 3d., at which they return about 7 per cent. With increased defence orders likely to offset any decline in civilian business the units still look a good industrial holding.
More Textile Results Investors in cotton textile shares are now less disposed to assess market values in terms of past profits and dividends than in relation to trading prospects. Nevertheless, the results now coming to hand do throw light on the companies' stock position and on the alertness or otherwise of the manage- ments. For the year to September 30th Joshua Hoyle and Sons, the Lancashire cotton and rayon spinners and manufac- turers, report a steep fall in group profit which, after tax of £459,188, against £707,318, is down from £1,078,922 to £573,310. This company had built up a heavy stock position during the preceding year, and it is doubt- less the necessity to write down this item which is mainly responsible for the decline in earnings. With a final dividend of 71 per cent., supplemented by a 21 per cent. cash bonus, the total distribution on the Ordinary stock is reduced from 20 per cent.
to 15 per cent. Obviously this was no worse a than the market had expected, for the 2s. Ordinary shares have subsequently improved from 3s. 414. to 3s. 6d. At this level the yield is just over 8 per cent.
Combined Egyptian Mills
Another important unit in the Lancashire spinning trade, Combined Egyptian Mills, has also suffered a steep fall during the year to September 30th Lin its trading results, with trading profits down from £2,507,964 to £1,703,384. Fortunately, the tax provision, which is about £450,000 lower at £861,000, has cushioned the decline in net profit, which appears at £555,872, against £872,525, and the directors have decided to maintain the dividend on the somewhat higher geared Ordinary capital at 8 per cent. In doing so, however, they issue a warning that this decision should not be taken as indicating that the same rate can necessarily be held in the current year. It is worth noting in this context that, while the transfer to general reserve is reduced from £300,000 to £200,000, the board have put £300,000, against nil, to re-equipment and stock contingencies reserve, while the carry-forward is down from £411,322 to £269,779. It is this back- ground which doubtless explains why, despite the maintenance of the 8 per cent. dividend, Combined Egyptian gi Ordinary units have improved only a few pence to 12s. 101d., at which the yield is approxi- mately 13 per cent. This is a much higher return than can be got on the equity of any other leading spinning combine, and would not advise holders to sell.
Leaseholds Profits Rise Having called attention in the past to the growth possibilities of Trinidad Leaseholds, the oil-producing, refining and marketing concern, I regard the latest results covering the year to June 30th as distinctly encourag- ing. Consolidated net profits of the group from operations in Trinidad and., from shipping, marketing and other activities elsewhere have risen from £1,470,705 to £1,899,952. This increase has been achieved after charging £4,047,780, against £3,001,935, for United. Kingdom taxation and after transferring £312,213, against £257,592, to contingencies reserves. Profits available for distribution in the accounts of the parent Company have risen from £1,069,480 to £1,379,016 and would have permitted the payment of a substantially higher dividend. There is to be no further increase this year, however, on the 161 per cent. tax-free rate established a year ago. Doubtless influenced by the need to conserve resources for the group's substantial capital programmes, the board have decided to put £1,100,000, against £700,000, to reserves in the parent company's accounts and also to raise the carry-forward by £25,700 to £335,781. On the 161 per cent. tax-free dividend rate, which appears to be covered about eight times over by the available net earnings, Trinidad Leaseholds 5s. Ordinary units at 26s. 9d. are yielding about 51 per cent. less tax. This may not seem a generous return in the present conditions of the oil share market, where quotations have latterly been falling on talk of a possibility of an oil surplus. I still regard the units, however, as good value for money, in view of the group's steady progress and the potentialities of investments it has recently made in Canada.
Odeon Group Recovery • The recovery in the fortunes of the J. Arthur Rank cinema and film group proceeds apace. At the annual meeting last month Mr. Rank held out the hope that if all went well Odeon Theatres, the parent com- pany in the group, would clear off its arrears of Preference dividends during the current financial year, which ends next June. Now he announces that this step will be taken forthwith by payment of eighteen months' Preference dividend, which will bring pay- ments up to December 31st. It can safely be inferred from this decision that further progress has been made in strengthening the group's finances and that the outlook is being viewed with confidence. In the last balance-sheet substantial progress was recorded in reducing the group's bank indebtedness, and since that date further benefits from the board's retrenchment plans have doubtless been gathered in. Odeon Theatres 6 per cent. £1 Preference shares are now quoted around 15s. 6d., which includes the 11 years' dividend, equal to about Is. a share net. They have come up from about 10s. earlier this year. Now priced to give a yield of about 8 per cent. I regard them as reasonably valued for the time being.
London Tin Attractions
After their fall in the early part of the year commodity prices now have a steadier look, and so have the shares of the com- modity producers, which have also suffered badly in recent months. Dividends recently announced by several important tin com- panies have come as a reminder that good profits are still being made, and it may well be that the recent market fall in share prices has over-discounted uncertainties in the outlook. A share in the tin group which has the merit of offering a stake in a wide cross- section of tin mining companies is the 4s. Ordinary of Londoil Tin Corporation. These shares now stand around 5s. 6d., against this year's peak of 6s. 9d. At this level the yield on the 20 per cent. distribu- tion for the year to April 30th, 1952, is over 14 per cent. This seems to me an unduly high return, having regard to the revenue prospects and to the Corporation's immensely strong financial position. The last balance-sheet showed just under £3 million in hard cash, quite apart from the Corporation's investments, which, at April 30th, had a .market value of £4,700'00. On asset values, which have probably improved rather than deteriorated since the balance-sheet date, the shares are worth over 8s. 6d. The Corporation has sound manage- ment, and it seems probable that at some future date the board will see fit either to make a capital repayment out .of the large cash resources or to develop part of the Corporation's business along investment trust lines.
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