FINANCE AND INVESTMENT
By CUSTOS The Fall in Gilt-Edged In the Consol market the Northern Rhodesia loan flop has touched off a precariously-balanced situation and induced a stream of small sales which, for the moment, are not matched by any official support or by serious buying by the large institutional investors. Quotations have fallen quite sharply and are now at a level at which the yield on long-dated stocks is nearly 4 per cent. Will this provide a resis- tance point 7 In my view it will, although I do not look for any real recovery on a solid basis until the contents of the Budget are known. I take a similar view of the equity share markets. Good profit and dividend announcements should prevent a serious setback, but apart from special situations which appear to offer scope, buying will be postponed until after Budget day. I still look for a moderate switching of speculative interest to gold shares, in anticipation of the Kaffir dividend season in June.
Prudential Pays More When the directors of the Prudential Assurance decided last November to dip into the Special Dividend Reserve Fund to pay a special dividend to the " A" Ordinary shareholders of 3s. 6d. a share it became apparent that a break was being made with rigid dividend limitation. There can be no surprise, therefore, at the board's decision to increase the dividend for 1950 on the " A " shares from 15s. 5d. to 17s., of which 12s. is payable on April 4th and 5s. on September 20th. This raises the annual rate from the level of 77 1/12 per cent., tax free, which has been in force since 1946, to 85 per cent., tax free. In the case of the Prudential " A " shares, dividends are derived from the profits of the Ordinary, Industrial and General branchei. • The preliminary statement for 1950- shows that profits of the Life branches showed an excess of £388,103 over the amount required to pay the " A " dividend. This balance, which compares with £368,619 a year ago, is being carried to the Special Dividend Reserve Fund. It is the board's intention to pay out of this fund a further special dividend on the " A " shares of not less than 2s. 6d. before the end of the year.
From these figures it is apparent that the immediate dividend prospects for the " A " shareholders are bright. If one takes the dividend rate as only 19s. 6d. tax free (I7s. plus a special 2s. 6d.), the yield at the current price of £36 10s. is approximately 5 per cent., less tax. On Prudential " B " Ordinary shares, which are of £1 denomination, with only 4s. paid up, the annual rate is being raised from 374 per cent., tax free, to 434- per cent., tax free. Dividends on these shares are derived from the profits of the General branch. Here the increase has fallen some- what short of market expectations and the price has fallen back from 87s. to 82s. 6d., leaving the shares at a level to yield 4 per cent. Once the short-term holders are out of the way there should be scope for some recovery in both Prudential " A " and " B." They are solid investments.
Imperial Tobacco Prospects
Sir Robert Sinclair, the chairman of the.' Imperial Tobacco Company, is not given to making rash forecasts. Stockholders are, therefore, entitled to draw some encourage- ment from the final sentence of his review at the annual meeting, which reads : " I know of no reason why the results for the current year should be any less favourable than those that are now before you." Sir Robert made this forecast after a full and frank survey of the many problems which now confront the tobacco industry, although in making it he was assuming that the Budget would not bring any fresh increase in the tobacco duty.: His analysis of the demand and supply position showed quite clearly that even at the present level of selling prices the tobacco shortage has begun to ease off, owing to the restrictive effects of high prices on demand.- It seems a fairly safe guess that with the law of diminishing returns threatening to operate Mr. Gaitskell will think twice before adding to the already heavy burdens of the smoking. public. Since the annual accounts of the Imperial Tobacco Company were published the £1 Ordinary units have been a dis- appointing market at just under £5. At this price they give the distinctly high yield for a first-class industrial equity of close on 64 per cent. I still regard them as under- valued
Blaw Knox Dividend • Having stressed the merits as an industrial investment of the 5s. Ordinary shares of Blaw Knox, the constructional machinery makers, I am favourably impressed by the latest results. For 1950 net profit rose from £109,982 to £142,334, but both these figures have been struck after providing for taxa- tion. Last year the taxation charge was £262,072, whereas in 1949 the provision under this head was only £175,972. It follows that trading results, before tax, must have increased by nearly £120,000. Recently this company announced a scrip bonus of 29 new shares for every 100 shares held and there should be no disappointment, therefore, at the board's decision to maintain the final dividend at 20 per cent., which brings up the total for the year once again to 30 per cent. That a substantially higher dividend could have been paid is apparent from the fact that 1150,000, against nil, is being trans- ferred to general reserve and 1100,000, against nil, to development reserve. These two transfers, which together amount to £250,000, have involved a reduction in the carry-forward of only £145,000. Following the announcement of these figures Blaw Knox 5s. Ordinary shares have fallen back 9d. to 37s. 6d. When they are quoted ex the scrip bonus they should stand around 30s., indicating a 5 per cent. yield on the 30 per cent. rate. In view of the company's progressive record and the very large margin of earnings behind the dividend I take the view that the shares are still well worth holding. They were recently up to 40s.
A Cheap Industrial
On March 9th 1 outlined the merits of the 4s. Ordinary shares of the Lancashire Hand- bag Company and forecast satisfactory results for 1950. Preliminary figures show that the company increased its net profit from £19,894 to £25,328. They also show that this increase was achieved after charging £39,000 for taxation, against only £26,750 for 1949. It is clear, therefore, that last year witnessed a sharp improvement in trading results. The directors have also fulfilled hopes that part of the benefit of the increased earnings would be passed on to the Ordinary shareholders. With a final payment of 174 per cent. the total distribution is being brought up to 25 per cent., against 20 per cent., and this is shown to be con- sistent with an increase in the carry-forward from £45,427 to £54,255. In the dull con- ditions in the industrial market which have prevailed during the past week these encouraging figures have met with little response. The 4s. shares are merely a few pence higher at 10s., so that they now offer the high yield of 10 per cent. As I have pointed out, this company enjoys alert management and a large part of its total output of ladies' handbags is taken each year by Marks and Spencer. It seems to me that, in the light of the earnings position, good balance sheet and the promising outlook, the shares deserve a much better rating than 3 yield of 10 per cent. They should be worth putting away for an improvement in capital value. On an 8 per cent. yield basis they would stand at 12s. 6d.
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