FINANCE AND INVESTMENT
By CUSTOS THERE is something very like a stalemate in the stock markets. Against the background of gradual recovery—at least in what may be termed our basic economic conditions— few people are willing to sell. Equally, after the rally in gilt-edged prices and leading industrial ordinary shares during the summer months there is little enthusiasm to increase commitments on the buying side. Investors appear to have lost a sense of direction, at any rate for the time being, and to have decided to await more convincing evidence than has latterly been available of the next developments. Prices are thus tending to drift and no real trend is discernible. While I see no reason to look for any sustained rise in markets, I shall be surprised if between now and the end of the year prices fail to keep reasonably firm.
Brush Profit Outlook Investors are receiving indications from many sections of industry just now of the effects on earnings of the transition from sellers' to buyers' markets. During the past week there have been several reductions in interim dividends, and although some have not been supplemented, as they ought to be, by any up-to-date review of trading con- ditions they all tell the same story of reduced earnings. Among the companies which have announced a maintained interim is Brush Electrical Engineering, the key concern in the Brush Aboe group, but in repeating the 4 per cent. interim the directors give share- holders a plain warning that this year's profits are likely to fall below last year's level. This forecast is bound to come as a disappointment to Brush Ordinary stockholders after the encouraging review of prospects at the annual meeting in May. Stockholders will derive some consolation, however, from the board's intimation that the group has a substantial volume of orders on its books and that next year's trading should be on a satisfactory level provided that wages and prices remain stable. The decision to maintain the interim of 4 per cent. certainly implies a measure of long-term confidence, and also that whatever reduction in profits is experi- enced this year will not be catastrophic. For 1951 the 4 per cent. interim was followed by a 6 per cent. final, as in the two preceding years, and the 10 per cent. total was covered by earnings of just over 40 per cent. The Ss.
Ordinary units now quoted just over par are yielding close on 10 per cent. Even allowing for the fact that this company has still to carry through a large-scale refinancing operation to replace bank loans by perman- ent capital I think the Ordinary units are a reasonable holding.
Dene Shipping Progress Dene Shipping, the tramp-owning con- cern closely associated with Silver Line, has achieved a further sharp increase in earnings for the year to July 31st. Group profit, after tax, reflects the higher level of freight rates in an increase from £85,743 to £148,274. Moreover, the profit figure has been struck after charging £248,370, against £108,860, for U.K. taxation. Following their con- servative distribution policy Mr. Henry Barraclough NO his co-ordinators have decided merely to maintain the Ordinary dividend at 15 per cent., a rate which is covered over five times by the available net earnings. They supplement the 15 per cent. dividend, however, by an extra Is. per 10s. share, free of tax, out of the company's large capital reserves. Following these results-Dene Shipping 10s. shares have been fairly steady around 30s. 6d., at which they yield just under 5 per cent. on the 15 per cent. dividend, without taking into account the tax-free payment. This company is well entrenched in the trade, has alert management and in recent years has built up a strong financial position. It also holds a substantial block of Silver Line shares, which should prove a good revenue-earner in the years to come. I do not advise holders to sell.
Dowty Equipment Record In face of conditions which in the matter of costs must have been far from easy Dowty Equipment, the Cheltenham concern which manufactures aircraft landing-gears and fuel pumps and fuel control systems for jet turbines, has achieved a new record of earnings. For the year to March 31st net profits have risen by £130,000 to £560,000, before deducting taxation, and by £23,500 to £205,800 after providing for tax. There can be no surprise, in the light of these figures, at the board's decision to raise the Ordinary dividend from 18 per cent. _ tax free to 20 per cent. tax free, even though a larger capital ranks for the final payment. The dividend is covered nearly four times over and in relation to the future one has to keep in mind that the £250,000 of new money raised by the new share issue towards the -end of last year can only have con- tributed a modest sum to the earnings figures just disclosed. On account of the current financial year ending next March - the board has declared a 10 per cent. interim, which indicates confidence in the earnings prospect. Dowty 5s. shares have moved up by several shillings in recent months, but at 31s. are still yielding just over 6 per cent. less tax. In view of the proved capacity of the management and the obvious scope for expansion in the company's field of activities the shares look like being a pro- gressive investment.
A Textile Surprise A sharp increase in profits coming from a textile concern is in these days a sufficiently rare event to call for comment. This remark- able achievement is announced by the Barber Textile Corporation, cotton waste merchants, spinners and weavers of cotton and rayon,
a Bolton concern with an excellent financial record. Profits for the year to July 31st, before tax but after a praeticllay unchanged depreciation charge, rose by £66,500 to £692,000. As the tax provision was only £7,000 up at £369,000 the net surplus was £59,000 higher at £323,000. The directors maintain the dividend by paying 131 per cent. on a capital doubled by a 100 per cent. scrip bonus last December. The figures show that this dividend is covered about five times over. Just how this company has emerged unscathed from the textile recession is not yet explained, but one must assume that its forward sales and stock position were skilfully contrived. Large sums are put to reserves which, despite the recent scrip bonus, still stand at a figure in excess of the issued equity capital. Barber Textile 4s. Ordinary shares are now quoted around 4s. 6d. and give a return of over 124 per cent. In view of the company's remarkable record and the strength of the financial position they must be judged under-valued at this level.
Fairey Aviation Results Some of the benefits of the company's policy of ploughing substantial sums back into the business are apparent in the latest results of Fairey Aviation. For the year to March 31st consolidated trading profits of this group were £805,000, of which £525,000 was derived from the completion of business from earlier years. For 1950-51 the group profit of £657,000 included £420,000 from that source. If one eliminates these delayed credits group trading profits are seen to have risen by about £43,000 to £280,000. The dividend is maintained at 25 per cent. and, as usual, is well within distributable earnings. The outlook appears to be for a continuing high level of activity. This company's naval and anti-submarine aircraft is on the top priority list and the group's activities are increasing in the manufacture of helicopters and guided missiles. Fairey 10s. Ordinary shares are now quoted at 32s. 6d. to give a return of 71 per cent. They look good value for money at this price.
A Preference Under Par
For investors whose main interest is in the possibility of capital appreciation, rather than immediate income, the £1 71 per cent. Cumulative Participating Preference shares of Burberrys, the clothing manufacturers and retailers, look attractive at the present price of 14s. This company, in common with most other textile concerns, has suffered a sharp setback. For the year to March 31st its net profit, after tax, was only £10,200, against £145,597 in the preceding year. This sharp fall was due, in great part, to the necessity for writing down stocks to market values, and in the light of the net profit figures the directors decided not to pay any dividend on the Preference or Ordinary stocks,* The 7i per cent. Cumulative Preference dividend is, therefore, in arrears since March 31st, 1951, the equivalent of about Is. 3d. net. At the annual meeting held earlier this month the chairman said that there had recently been some improve- ment in the company's retail sales and in the volume of wholesale orders booked. He also hinted at the possibility of a merger with another undertaking. What seems to me to give the Preference shares speculative merit is, first, the substantial voting power which they command, which could scarcely be ignored in any amalgamation scheme, and, second, the strength of the assets position. At March 31st net liquid assets, taking book values for stocks, amounted to £781,000. If one makes a further allewance for possible stock write-downs one could safely put this figure at £500,000. On top of that there were freehold premises carried at what must surely be an under-valuation in present conditions of £609,000 and other fixed assets of nearly £100,000. Altogether, therefore, -assets behind the £1 million of Preference capital appear to give a full cover of 20s. a share. Around 14s. the shares look worth putting away for an eventual recovery.
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