FINANCE AND INVESTMENT
By CUSTOS Nor only the stockholders in Anglo-Iranian Oil but investors as a whole are, for the time being, " in a Persian market." It is now the news from Teheran that matters most in swaying Stock Exchange prices and, for the moment, the news does not look good. For the first time for several weeks there has been a tendency for profit-taking to out- weight fresh buying of industrial ordinary shares and quotations have slipped back. That, of course, is an incomplete and in a sense superficial explanation of this week's setback. To get perspective one needs to keep in mind the substantial advance in industrial equity quotations which has taken place since Budget Day. The average level is still very close to the peak reached in January, 1947, and it is normal that after such a rapid rise—especially with so much good dividend news behind it and no longer in frdnt of it—the market should begin to pause for consolidation.
Recovery Ahead ?
The really important question is whether this marks the beginning of the end of the upward movement. I doubt that, although must add that I look for a more gradual and selective improvement in prices when buying is resumed. For one thing prices of leading industrials are already fairly well adjusted to a high level of earnings and divi- dends. For another, commodity prices have almost certainly passed their peak ; and, finally, the downward drift of gilt-edged prices is pulling down other prices through the process of yield adjustment. Gold shares ? A disappointing market, but they will stage a recovery as soon as it appears that inflation is being held in check. For the long-term speculative buyer Stilfontein around 26s. should be worth picking up on a dull day.
Unilever Capital Needs My hint last week that Lever Bros. and Unilever Limited, the English side of the soap and margarine combine, might be in the market before long for more capital is justified by the board's remarks in the 1950 accounts. Higher prices, it seems, are result- ing in a quicker absorption into this expand- ing business of the £10,000,000 of new. money raised on debenture stock last year. The upshot is that the company will almost cer- tainly 'red more money, in the shape of permanent capital, for carrying large stocks and fulfilling a considerable capital pro- gramme. Will Sir Geoffrey Heyworth and his co-directors resort once again to an issue of debenture stock ? Everything will depend on the state of financial markets when the new financing operation is launched, but I think one may assume that if conditions remain more or less as at present there will be a " rights" issue of ordinary shares to the ordinary stockholders. This prospect may hold down the price of the existing shares in the market close to the current level of 54s. 6d. but for the long-term investor this should prove a satisfactory basis for a pur- chase. On the 13} per cent. dividend, which is well covered, the yield is now nearly 5 per cent. The full accounts emphasise the Immense inner strength of the company and the alert management which guides the fortunes of the group. One point worth noting is that the American end of the busi- ness has now got over its troubles and is again earning good profits.
I.C.I. Bonus Banned It is hard to keep pace with the mental processes of the Capital Issues Committee. After having shown distinct signs of grace in sanctioning a long series of capital bonus proposals since the Budget this august body has suddenly clamped down on what, at least on the surface, appears a reasonable bonus scheme put up by Imperial Chemical Industries. At the I.C.I. annual meeting Mr. John Rogers, Lord McGowan's successor in the chair, disclosed that the board had put forward proposals to capitalise a substantial part of the group's capital reserves with a view to bringing the issued capital more closely into line with current financial realities. It will be recalled that in • its December 31st, 1950, balance sheet I.C.I. re- valued its assets with a result that reserves were increased from £17,000,000 to £118,000,000. It is hard to see why the com- pany should not be allowed to translate this writing up into new ordinary shares by means of a scrip bonus scheme but apparently the amounts involved have been too large for the C.I.C. to swallow. Or is it that, in its wisdom, the C.I.C. has judged that this would amount to a distribution of capital appreciation likely to lead to spending out of capital ? It all comes to what the C.I.C. considers to be " true " reserves. In raising these points I have paid the Treasury the compliment of assuming that in banning the I.C.I. bonus plan purely political influences have not been allowed to come in. I fear, however, that the City is probably right in thinking that this particular decision has been dictated by political rather than purely financial considerations. This sus- picion is heightened by the wording of the Imperial Chemical chairman's statement. He was careful to point-out that whereas the application was made to the C.I.C. the refusal—without any explanation—came from the Treasury.
Krubong Rubber Position A fortnight ago I outlined the merits of the 2s. shares of Krubong (Malacca) Rubber. The shares were then quoted around 2s. 6d. and I suggested that they should be worth buying for their break-up attractions. The company was in process of selling one of its estates for £20,720 and was negotiating to dispose of another property of 452 acres on the basis of £50 an acre. That pointed to the' probability of a total of about £45,000, allowing for the company's net liquid assets, or about 3s. a share. Now comes the news that the board have accepted an offer for this second property of £38,000 which, of course, is substantially more than was sug- gested in the earlier announcement. The prospect is therefore that the total amount available may be as much as £60,000 or 4s. a share. Those who bought around 2s. 6d. may feel that the quick profit now within their reach—the market-price is now up to 3s. 6d.—is too tempting to resist. I would not dissuade them from selling one-half of their shares. But for the patient holder who does not mind the risk of flip twixt cup and lip the shares still look worth holding for the ultimate cash pay-out.
King's Motors (Oxford) Another share whose merits have been emphasised several times in these notes which is turning out well is King's Motors (Oxford). The 2s. ordinaries, quoted under 13s. last autumn, are up to 15s. on the strength of excellent earnings. Profits have jumped from £123,400 to £200,300 and the dividend is up from 70 per cent. to 80 per cent. On top of that the board is proposing a 1 for 2 scrip bonus. This is a progressive company specialising in the sale of motor cycles and is steadily building up a strong financial position. I still feel that there is plenty of scope for expansion—and for increased dividends. On an ex-bonus basis the shares should stand around 10s., when they should be worth putting away. The divi- dend yield is now over 11 per cent. which seems to me to make generous allowance for the risks of this class of business.
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