FINANCE AND INVESTMEN1

By CUSTOS

MARKETS are still in retreat, but they are fighting a stern rear- guard action with considerable success. Even the grim turn of events in the middle of the week failed to produce any panic or disorderly selling. All that happened was that jobbers quoted wider prices, buying dried up and wherever sales were pressed the seller had to make price-concessions. At no time has the machinery of markets broken down, a striking tribute to the fortitude and commonsense of the British investor and the strength of the defences devised in recent months. In present conditions there is little point in discussing the " in- trinsic value " of investments. As I emphasised last week. values are now in the melting-pot, and everything depends on the outcome of the struggle. If proof be needed, it is here in striking form in the sweeping powers over property now vested in the Government. The investor can play his part in defend- ing Britain's financial front by standing firm and continuing to lend to the Government.

CABLE AND WIRELESS PROSPECTS

Even in war conditions, it seems, the Cable and Wireless combine should be able to operate very profitably, always pro- viding, of course, that actual dislocation of services through enemy action is avoided. In the annual report of the operating company shareholders were reminded of the effects of central- ised control of many industries in reducing the volume of cable business, but at the meeting Sir Edward Wilshaw made it plain that in spite of these difficulties receipts were running at a satis- factory level. On the basis of the experience of the first four months of 1940 he felt justified in looking for an increase on the record figutes achieved last year. Unfortunately the com- pany is vulnerable to E.P.T., but in anything like reasonable conditions the 4 per cent. dividend paid to the holding concern should be comfortably earned. On that assumption Cable and Wireless (Holding) should itself be able to maintain the 4 per cent. rate on its ordinary stock. Quoted at 5o the stock now yields 8 per cent. It is worth holding for a substantial recovery in any general improvement.

EDMUNDSON'S PROGRESS

Year after year Edmundsons Electricity Corporation estab- lishes new records of sales and of trading profits. The latest accounts, covering the year ended March 31st, 1940, are no exception, although the heavier taxation charge has meant a slight reduction, from £588,798 to L578,789, in the net profit. Ordinary stockholders again get 6 per cent. out of available earnings of just over 7 per cent., and in the consolidated balance- sheet total reserves, including income-tax and depreciation reserves, stand at something over £7,000,000. Thanks to sound financing this group has been able not merely to carry through a steady expansion programme but to fortify its internal position in recent years.

I am not surprised that the board has now decided to increase the authorised capital, for expansion on the present scale must involve heavy outlays. Power is, therefore, being taken to issue 1,500,000 new shares, although the class of share is not specified. Permission to issue shares is being sought of the Capital Issues Committee. Since the group's development and extension work is directly related to the war effort the requisite sanction should be granted. Edmundsons LI ordinary units stand at 23s. to yield 5:1- per cent. They are a first-class holding.

MARKS AND SPENCER POLICY

What with the dividend limitation plan and the proposed purchase-tax Marks and Spencer shares have been badly hit in the past few weeks. In my view the fall has been justified, but that is quite consistent with a conviction that this under- taking will continue to earn good profits and in better times will resume its record-breaking career. At this week's meeting Mr. Simon Marks explained why the board had felt compelled to reduce the cash dividend from 421 to 38+ per cent. He also showed that the company has been faced by difficulties arising out of evacuation, the black-out, production, supply and mer- chandising problems and complicated price adjustments. All had been overcome, although there were still some awkward obstacles ahead. So far as the supply question is concerned, (Continued on page 735)

FINANCE AND INVESTMENT

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the company is strongly placed, in that it now draws nearly Too per cent. of its goods from British and Empire sources, as against 90 to 94 per cent. during the previous to years.

CALCUTTA ELECTRIC EXPANSION

In these days, when political risks in investment so often overshadow the economic risks, one does not feel very chary about a purchase of Indian utility shares. The political risk is still there, but it now looks remote by comparison with that of many other shares hitherto regarded as absolutely safe. Bear- ing this in mind and looking at the company's steady record, I cannot help feeling that Calcutta Electric Supply LI ordinary units are good value at 3os. On the 8 per cent. tax-free divi- dend the yield is about 8 per cent., less tax. Lord Meston's review at the annual meeting revealed a further increase in consumption both for domestic and industrial use and a strengthening of the liquid position following the recent issue of preference stock. Bank overdraft has been paid off, and the cash holding at December 31st had risen from £46,424 to L459,594. Obviously, the company now has a useful sum in hand for the financing of its future development schemes. Reserve fund, apart from obsolescence reserve and a substan- tial share premiums account, stands at £968,084, or about 3o per cent. of the total issued ordinary capital.

A TEXTILE RECOVERY

Preliminary figures of the Fine Cotton Spinners and Doublers' Association disclose a really spectacular recovery. For the year to March 3tst profits more than doubled at £614,761, against £247,141, and the net figure, after providing for depre- ciation, debenture interest, &c., rose from £32,380 to £380,264. This enables the company to resume preference dividend pay- ments, with one year's dividend, which brings matters up to April, 1932, and at the same time to eliminate the debit balance of £180,157 and carry forward a credit of £106,357. I should expect these excellent results to be well maintained this year, but allowance must be made for the incidence of Excess Profits Tax. Fine Spinners 5 per cent. LI cumulative preferences stand at 13s. 9d., yielding 71 per cent., apart from the sub- stantial arrears to be cleared off. As a speculation they are attractive at this price.

INSURANCE REVENUE PROBLEMS

Low interest rates and heavy taxation charges have intensified the difficulties of msurance companies in maintaining a reason- able return on their investment funds. These problems were reviewed this week at the annual meeting of the Norwich Union Life Insurance Co. by Mr. Ernest Hicks. The Life Society, he stated, had succeeded even in last year's difficult conditions in investing more than £3,250,000 at an average gross rate of interest of over 4 per cent. Moreover, despite a fall of 4s. 6d. per cent. last year, the net rate earned over the whole of the assets was still as much as £3 as. id. per cent., whereas reserves had been maintained for the past forty years on a 23 per cent. basis. Thus the company still had in hand a reserve margin of LI 8s. id. per cent. This position is clear evidence of the great internal financial strength of the company. It reflects the benefits of increasing holdings in real estate in recent years and even more of the stringent writing down, of assets.

At the annual meeting of the Liverpool and London and Globe Insurance Co., Mr. A. Kentish Barnes was more con- cerned with the progress of the foreign section of this com- pany's widespread business than with the assets position. He pointed out that, although developments abroad meant some on foreign investments, this amounted to very little in rela- tion to the total assets involved. It did mean, however, that valuable premium income was temporarily withdrawn and he

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FINANCE AND IN VESTMENT

(Continued from page 735) made no attempt to disguise the difficulties created by currency and exchange restrictions in many former profitable fields of operation. In the accident department the underwriting profit of £457,104 was just under so per cent. of premiums ad trading both at home and abroad had been well maintained. An encouraging feature had been marked improvement in Canada, Australia and South Africa. In the life department new business in the first eight months of 1939 had easily out- stripped the figures for the corresponding period of 1938 but war practically brought business to a standstill.