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ELECTRICAL EQUIPMENT PROSPECTS
In view of my references to the favourable prospects of electrical equipment shares in the spring it is disappointing to see the monthly index number of the British Electrical and Allied Manufacturers' Association following a downward curve. It is as well to remember, however, that'the " Beat= " barometer is based on the value of new orders which, though it is a trustworthy guide to the state of the industry in normal times, may be less satisfactory just now. The point I have in mind is that orders are frequently held back in conditions such .as now prevail in the electrical equipment trade simply because the leading manufacturers have so much work on hand that they cannot promise delivery in respect of new orders except at very distant dates. The recent fall in new orders placed may thus be due much less to a genuine drying up of demand than to the natural reluctance of consumers to enter into unusually long-term commitments.
For the present, in any event, the industry is working up to capacity as greatly enlarged by additions to plant effected in the past three years, and although costs have been rising, the margin of profit has been well maintained. To those readers who bought English Electric ordinary shares on the strength of recommendations in these notes I say : Hold for the report due in February. It will be recalled that this company earned 151 per cent. on its ordinary capital last year, although no dividend was paid in view of the necessity to clear off preference arrears. This year the volume of work in hand has been consistently higher than in 1936, and I shall be surprised if the accounts do not show a further substantial rise in profits. The obvious desirability of conserving cash resources in an expanding business suggests that the board will be cautious in their dividend policy, but a payment of 9 or to per cent. should not be. impracticable. On the basis of a 9 per cent. rate the ordinary £1 shares would yield 6 per cent. at today's price of 3os. They should prove well worth holding until the accounts come along.
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