FINANCE AND INVESTMENT By CUSTOS Gicr-edged are still setting the
tone in the stock markets and, in spite of the resumption of trustee borrowing on a modest scale, are making good progress. At last, it seems, \ the big institutional buyers who now call the- une have seen fit to re-enter the market on cautious lines and, with sellers content to hold off, the response of prices has flattered the volume of buying. If the wages situation took any unfavourable turn this movement would be quickly reversed, but meantime it is satisfactory that markets are not behaving as if we were approaching another autumn crisis. Provided that gilt-edged stocks can maintain their improvement there is no reason why the recovery in industrial equity shares should not proceed a little further in the coming weeks, although I think it is much too early to look for any substantial rise. The July trade figures show only too clearly that British exporters are now running into stiffening competition over a wide front.
Japanese Bonds As I suspected, the announcement of the terms of the Gelman debt settlement, so far from bringing to an end the rise in German bonds, has provided the signal for some heavy buying. Dawes, Young and, more particularly, the Konversionskasse bonds have risen by several points, and I still cannot see any reason to sell. What of Japanese bonds ? Are they also under-valued ? Here a buyer is still in the dark as to the terms which may emerge from the New York conference, but the probabilities are strongly in favour of a settlement which will be satisfactory to the British investor. One City house which is usually well-informed has made some calculations based on fair assumptions : (1) that contractual rates of interest are maintained ; (2) maturity dates of bonds falling due before 1965 are extended to 1965 ; (3) interest arrears are funded by the issue of 13-year bonds carrying 3 per cent. interest ; (4) dollar clauses are recog- nised ; and (5) Japanese bonds after the settlement sell to yield 8 per cent. to redemp- tion. All these are, in lily view, reasonable assumptions. If one accepts them the scope for substantial appreciation in Japanese bonds—on an average by about 40 per cent. from current levels—bcomes clear. Two bonds with possibilities above the average are the 51 per cent. issue 1930, now 156 with a theoretical price—on the above assump- tions—of 228 and Tokyo Electric 6 per cent., at 168 against a potential value of 243.
Powell Duffryn Expansion Preliminary figures for the year to March 31st of Powell Duffryn leave no room for doubt that the board's policy, initiated since coal nationalisation, of applying the group's substantial liquid resources in developing oil, overseas coal and engineering activities is already yielding good results. The–group's profits, before allowing for tax and depreciation, have risen from £1,957,000 to £2,332,000, or about 20 per cent. After -deducting -larger sums for tmo, etc., net profit, at £732,000, is 27, higher, and would have permitted a modest increase in the ordinary dividend. The' board's distribution policy has been generous in past years and the 8 per cent. dividend which is covered by a moderate margin of earnings, is maintained. The year's surplus earnings go to swell the carry- forward, which has now reached the impres- sive figure of £2,175,000. Although some stockholders may have been mildly disap- pointed at the absence of any dividend increase the £1 Ordinary units have improved to 30s. 3d. In view of the group's alert management and its promising interests in the oil industry, especially its 50 per cent. investment in Vacuum Oil in this country, I regard Powell Duffryn as a good holding. The yield on the current dividend is 54 per cent.
Furness, Withy Surprise As investors are well aware, conditions in the shipping industry have deteriorated considerably in recent months from the peak reached last year. The decision by so cautious a board as that of Furness, Withy & Co. to raise the Ordinary distribution for the year to April 30th by 31 per cent. to 121 per cent. has thus come as a pleasant sur- prise. The dividend is up from 91 per cent. to 10 per cent. and there is also a 21 per cent. cash ,bonus, against nil. Its 24 per cent. tax- free bonus paid a year ago was distributed not out of profits but out of a surplus on realisation of investments to commemorate the sixtieth anniversary of the company. In the light of the results achieved in the year to Aprilpth the increased dividend looks fully justified. Although the group's earnings, as the chairman has often empha- s'sed, owe a good deal to business other than shipowning, they are derived mainly from the operation of liner services on most of the regular trade routes. Group profit has jumped by £3,500,000 to a new record figure of £6,500,000, a striking reflection of remunerative rates, especially in the first half of the year. The Exchequer has taken £3,200,000, against £723,000, but the group's net profit is nearly doubled at £2,900,000, against £1,500,000. The increased distribu- tion is consistent with the allocation of £500,000, against £340,000, to fleet replace- ment account and with a further increase in the carry-forward from £323,979 to £402,336. On the strength of these results Furness, Withy £1 Ordinary units have risen Is. 6d. to 3,1s. 9d, at which they return over 71 per cent. The board's decision can, I think, be taken as implying a certain confidence in the outlook. The units are a first-class shipping investment.
J. C. & J. Field Plans It is seldom easy for stockholders to assess the merits of proposed expansion schemes and I doubt whether the latest plans of J. C. & J. Field, the soap and candle makers, will be any exception. The board's proposal to acquire the issued capital of D. R. Collins, who make " Goya " per- fumes and cosmetics, will involve most of the company's substantial resources, but will still enable 9s. a share in cash to be returned to the shareholders. The earnings record of the Goya. business under Mr. D. R. Collins's management is impressive and it is clearly an integral part of the proposed merger that his energy and enterprise should be made available to the Field business, which has shown a tendency to slip back in recent years. The purchase price is des- cribed by Sir Russell Keith, the well-known City accountant, as "fair" and reasonable, and it is intended, it seems, to pay 30 per cent. on the 5s. shares as they would be after the merger and the capital repayment. Should Field shareholders support the plan ? I think they should, although they are entitled to more information' about the prospects of the combined businesses. The existing 10s. shares, which had been moving up on reports of impending developments, have fallen back, now that the news is out, to 27s. If one deducts the 9s. proposed return, that leaves 18s. for the 5s. shares with a prospective 30 per cent, dividend, or an indicated yield of 81 per cent. They seem to me to be fully valued for the time being.
A Share for Recovery From a high point of 22s. 6d. in 1949 the £1 Ordinary shares of Constable, Hart, the public works contractors, have come down to 12s. 6d. This fall is attributable partly to general market conditions and partly to the set-back in the company's fixtures. After paying 8 per cent. for nine successive years the company reduced the payment to 6 per cent. for 1948-49 and paid no dividend for 1949-50. In the year to September 30th, 1951, an improvement set in and dividends were resumed with 5 per cent. paid out of earnings of 12 per cent. To judge from the chairman's statement issued with the report in January the results for the year to September 30th, 1952 are likely to show a further recovery. The chairman described the outlook as " better than for many years past." The order book for general con- tracting business was well filled at prices slightly better than in the previous year ; all the contracting departments were operat- ing at full stretch and considerable business was in hand in connection with the rearma- ment programme. In addition he disclosed that for the first months of the financial year ascertained profits had shown a " satisfactory improvement." Nothing, so far as I am aware, has happened to alter this encouraging picture and with the shares at 12s. 6d. offering a yield of 8 per cent. on a dividend rate which looks low by the company's standards, they should have scope for a rise between now and the issue of the next accounts.
Previous page
