FINANCE AND INVESTMENT
By CUSTOS
AFTER their recent improvement, which has exceeded more cautious City estimates, markets are now in a consolidation phase. Good profits and dividends are just about holding their own as an influence on equity share prices with the depressing news from the textile and some other branches of industry, and there appears to be some genuine investment support for gilt-edged at their new level. As expected, the firmness of gilt-edged prices has now been followed by the resumption of trustee borrowing on a large scale. With the terms nicely drawn— a 41 per cent. stock, with redemption dates of 1974-79, at 99—the British Electricity Authority has emerged from the wings with a loan operation of £150,000,000. This is a large amount, but in its present mood the market should be able to absorb it without giving ground. The yield of just over 44 per cent. on a medium-dated stock will, I think, prove tempting to many kinds of investors.
P. & 0. Prosperity Like the tramp shipping industry, although not on quite the same spectacular scale, the liner companies enjoyed abnormally pros- perous conditions in 1951. Higher costs were much more than counterbalanced by the rise in freight rates, and there can be little doubt that all the companies concerned will report substantially higher net earnings. Covering the year to September 30th, 1951, the preliminary figures of the P. & 0. Steam Navigation Company give a foretaste of what may be expected. This group's operating profits increased by over £5,500,000 to £18,850,000. With investment income the total was up to £19,962,000, against £15,219,000. Taxation and depreciation charges are increased, but net profit is still left over £740,000 up at £4,494,982, a figure which has been struck after providing £666,925 for losses on British Government securities. It is not surprising, in the light of these figures, that the cautious P. & 0. board have seen fit to increase the dividend on the Deferred stock. A final dividend of 101 per cent. is being paid on the Deferred capital as increased to £6,900,000 by the 50 per cent. scrip bonus given last Sep- tember. With the interim of 8 per cent. which was paid on a capital of £4,600,000 the total is the equivalent of 16 per cent.— the rate paid for the preceding year—on the capital as now ,enlarged. P. & 0. £1 Deferred units are not and should not be valued wholly by reference to their dividend yield. This at the present time is the reason- ably satisfactory one of 6 per cent. at the current price of 51s. 6d., but the asset value behind these shares is far above the current market quotation. P. & 0. Deferred units are among the best investments in the shipping list.
Cement Dividend Decision On the strength of the results recently announced by the Rugby Portland Cement Company stockholders in Associated Port- land Cement Manufacturers, the leading company in the industry, may well have hoped for a further modest increase in dividend. The preliminary figures now issued show that while expectations of larger gross earnings are amply fulfilled, the much heavier provisions for taxation have reduced the improvement in net profits to such small proportions that the board has decided merely to maintain the 271 per cent. rate. Associated Portland's consolidated trading surplus rose sharply last year from £7,166,970 to £8,514,725, but after providing nearly £4 million, against just over £3,114,000, for taxation and making larger transfers for depreciation and for plant and machinery replacement reserve the net profit is prac- tically unchanged. The £1 Ordinary units, now standing at £5, against last year's peak of £5 12s. 6d., are priced to give a return of 51 per cent. They are a sound investment holding.
B.I. Cable Surprise When at the end of last month British Insulated Callender's Cables announced their new issue of 3,109,614 new Ordinary £1 shares at 22s. each the directors recorded their confidence that the 1951 profits would show an improvement on those of 1950 and would be sufficient to maintain the dividend of 71 per cent. on the increased Ordinary capital. They added that while it was difficult to make any forecasts the company had a satisfactory order-book, which would keep the factories employed for some time to come. That statement was regarded as the conventional formula for indicating that the 71 per cent. dividend—no more and no less--would be announced with the 1951 figures. The board's decision to supplement the 71 per cent. by 11 per cent. cash bonus, making a total of 9 per cent., has therefore come as an agreeable surprise. The higher payment still represents a very conservative distribution of the available net earnings. Group trading profit has risen by about 30 per cent. from £6,130,642 to a new peak of £7,966,464, and although tax has absorbed £4,081,211, against £2,945,201, and the depreciation charge has been raised by £64,000 to £845,836, net profit is over £740,000 up at £3,054,868. Out of the £2,696,866 attributable to the parent com- pany the 9 per cent. dividend on the Ordinary stock absorbs only £437,000. Sir Alexander Roger and his co-directors have thus been able not merely to pass on some small part of the additional earnings to the equity -shareholders but have ploughed back large sums to reserves, which will make a valuable contribution to the group's liquid resources. Follotving the profit and dividend announce- ment British Insulated new £1 Ordinaries, which are at present only 10s. paid with a balance of 12s. still to be met, are quoted around 17s. 3d. Allowing for the 12s. fall- ing due a buyer is in effect paying 29s. 3d. for the £1 shares, which can be bought free of stamp duty. At this level the yield is 51 per cent. With the group's financial requirements now covered for some time ahead the shares are not dear.
United Molasses Progress With its interests extending over tanker, liner and dry cargo shipping, trading in molasses and industrial alcohol, the United Molasses Company has obviously been well -placed to take advantage of recent boom- like conditions. So it proves, the group's profits having jumped last year from £3,643,644 to £8,186,344. Even after allow- ing for the heavy depredations of the Exchequer group net profit was more than doubled at £2,522,588. With a final dividend of 64 per cent. tax free the total distribution is brought up to 121 per cent. tax free. On the present Ordinary capital of £5,863,500. the distribution is the equivalent of just under 20 per cent. gross, which compares with the equivalent of just over 141 per cent. gross for 1950. The Molasses group can boast not only of immensely strong finances but of alert and enterprising management. One is tempted, therefore, to think that whatever falling away from last year's peak level of earnings may be in prospect the present dividend rate, covered nearly four times over, should not be in jeopardy. The 10s. Ordinary units are now quoted around 34s. 3d. to yield 5} per cent. I regard this as a reasonable valuation for this equity in present market conditions.
London Brick Results Following the increase in the Ordinary dividend from 15 per cent. to 171 per cent. the full results of the London Brick Com- pany for 1951 are well up to recent City forecasts. On the strength of a substantial increase in output gross profits rose last year from £1,043,000 to £1,441,000. Share- holders will not lose sight of the fact, how- ever, that practically the whole of this satis- factory increase in gross earnings has been absorbed in larger provisions for deprecia- tion and taxation. At £400,000 the total depreciation charge has been increased by £150,000, and after off-setting the benefit of initial allowances the tax liability is up sharply from £482,000 to £709,000. As a consequence of these substantially larger deductions net profit is only £16,000 higher at £284,000 and covers the Ordinary distri- bution by only a modest margin. London Brick £1 Ordinary shares now quoted around 55s. 9d. are offering a yield of 64 per cent. This seem to me a reasonable return in view of the company's leading position in the brick industry and the favourable trading outlook.
Thomas Tilling and E.P.L.
It is not surprising to find Mr. W. Lionel Fraser, the chairman of Thomas Tilling, adding his voice to the criticisms of Excess Profits Levy. In his statement accompanying the latest accounts he makes the point that as at present drafted this impost will bear very harshly on Thomas Tilling, owing to the incidence of the capital profits dividend which was paid in 1949. Here is a company which, having sold its road transport inter- ests to the Government, has in effect made a fresh start as an industrial holding concern with substantial interests in many" growth." undertakings. As such it stands to be badly hit by tax which, in its present form, cuts quite arbitrarily across any recent or pros- pective expansion in earnings. In the latest accounts there is ample evidence that alert management is achieving a satisfactory expansion and consolidation of the com- pany's varying interests, which range over insurance, car hire, the manufacture of " Pyrex " glassware and aero components, electrical engineering and contracting. Nor has the phase of expansion come to an end. The company is still possessed of large liquid resources approaching £2 million available for investment as suitable oppor- tunities arise. In 1951 group trading profits rose by £262,000 to £1,018,000 and the 6 per cent. Ordinary dividend is shown to be covered more than 21 times. Quoted around 22s. Thomas Tilling £1 Ordinary units are priced to yield 51 per cent. In my view they should prove a worth-while industrial holding.
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