FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT A CLOUD usually passes over the Stock Exchange and shares begin to droop when Parliament reassembles. This time inter- national as well as domestic politics caused the gloom to spread. But the shadow of the coming issue of denationalised steel made the gloom darker than it might otherwise have been. The prospectus of the offer for sale of 14 million ordinary shares of United Steel will be published on Monday next and in view of the other steel issues which will have to be made the "powers" are naturally making certain that this first one will be a huge success. A consortium of all the leading institutions of the City (insurance companies, issuing houses, trusts, etc.) will subscribe for the whole issue, each being responsible for a prescribed number of shares. They can, if they will, apply for more than their prescribed number but they will only receive the handsome under- writing commission on the amount " under- written." Whatever the response of the public and the former shareholders may be, the issue is therefore bound to be over- subscribed and, as far as I can see, is also bound to open at a premium. The amount of the premium and its duration will depend, of course, on the size of the public response. There are various attractions which should whet the public appetite. In the first place, a steel equity is not quite the risky thing it used to be when the industry was exposed to the extreme fluctuations of the old trade cycle. In those days it was customary for investors to demand up to 2 per cent. more for a steel risk. Today the "Government, in the pursuit of full employment, is jointly responsible for steel planning and has power under the Steel Act to undertake develop- ment which the industry is unwilling or unable to provide. For investors to acquire the leading steel equity on a yield basis of 7.2 per cent., which is 2 per cent. more than the yield on many " blue chips " and 1.3 per cent. above that of " all industrial shares " in the Actuaries investment Index, seems fair enough.
United Steel Attractions
In the second place, the United Steel shares are offered at 25s. " cum " the final dividend of 7f per cent, which will be declared early next year in respect of the fifty-three weeks ending on October 3rd, 1953. Earnings for that year are estimated at £9 millions, which is said to be exception- ally high, but for the current year the directors regard £6 millions as a more reasonable and maintainable profit figure. This would allow earnings of about 30 per cent. on the equity capital, so that the expected annual dividend of 9 per cent. would be covered more than three times. An earnings yield of 24 per cent. and a dividend yield which would be over 71 per cent. if allowance is made for the net final dividend in the issue price, are not unalluring. Finally, the subscriber will have the option to tender 31 per cent. War Loan and other Government stocks at the prices ruling at the close of business this week instead of putting up cash. Does this not suggest that if a Labour Government were to re-national- ise steel it would have to take back the Government stock tendered at the prices
fixed this Friday ? But I do not suppose that the risks of re-nationalisation will be taken very seriously. If and when Labour resumes office it will have far greater claims on its Parliamentary time than the techni- cality of a steel company's share register, assuming that.steel remains under Govern- ment planning control.
Anglo-Iranian Oil The violent swings of Anglo-Iranian ordinary stock derive from the fact that it is heavy in price and narrow in market. Six months ago it was under £6. A few weeks ago it was fluctuating around 71 until a Sunday newspaper suggested that a bonus was imminent. This and the subsequent announcement that the company had invested $5 millions in Triad Oil, a small Canadian producer in the Alberta field, carried the stock to over 8/. Then the bad political news from the Middle East brought it down to 71. Although Anglo-Iranian has made good its loss of Persian oil it is still dependent entirely on the Middle East. A peculiar feature of Middle East oil is its transit by pipeline through small countries which produce no oil but can produce a lot of trouble. No prudent investor would assume the extreme foreign political risks of Anglo-Iranian if it were not for the unique domestic political gamble it offers. The British Government holds £111 millions of its £20,137,000 ordinary stock. Many years ago I wrote a book on the oil trusts which argued that this Government share control was politically both dangerous and harmful and for all practical purposes unnecessary. And so it proved, but the only authority who agreed with me at the time was the then Managing Director of the Shell. However, at the end of the last war Sir Winston Churchill, I am told, came round to this view, although he was originally responsible for acquiring the shares when he was First Lord of the Admiralty. But his successor in office, Mr. Attlee, would not hear of a sale, for Labour was then committed, to nationalisation on principle. Now Sir Winstorkis back in office I expect the question of a sale has once more been raised—but at a very different price. In 1952 in spite of the Persian upheaval the Company earned 182 per cent. and paid a miserly 35 per cent. The net assets available for the equity, on balance sheet figures, were £134 millions. The general reserve was no less than £97 millions. It is obvious that the Company could double its issue of ordinary stock and still pay the same dividend. Would not the Government expect the Company to bring its capital into line with the real value of its assets before it considered selling its con- trolling shares ? That would indicate a price nearer £10 than £8. But can the deal be done before Sir Winston leaves-office or the Middle East goes up in smoke ? That— is anybody's guess. But I am not sure that the Shell Transport and Trading, which was going to head the British group acquiring the Government's share, is now very anxious to buy—without AmericaA participation.
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