FINANCE AND INVESTMENT
By CUSTOS
FROM the replies so far announced to the F.B.I. inquiry on dividend limitation, it is already abundantly clear that the renewal of tho present voluntary agreement after March nth is not going to be all plain sailing. While many of the larger industrial companies, such as Courtaulds, seem willing enough to accept a fixed-dividend ceiling for another year, others have seized the opportunity which the F.B.I. inquiry has afforded them of expressing their dissatisfaction with what they rightly regard as a one-sided bargain. To make dividend limitation conditional on the Government effectively stabilising wages or agreeing to reduce expenditure and taxation is, of course, some- what illogical, in the sense that if wages rise and industrial taxation is not reduced precious few companies will have the profits available for paying larger dividends. What is clear is that industry—or a large section of it—feels that in return for an undertaking to pursue at least a policy of moderation and restraint in dividend payments the Government should be prepared to give some quid pro quo. I
shall be surprised if Sir Stafford Cripps shows himself unwilling to meet industry in the matter of, say, tax allowances for depreciation as part of a new dividend bargain.
IMPERIAL TOBACCO STOCKS
There is nothing in the full report of the Imperial Tobacco Company to call for any revision of the view I expressed last week that at their present level around £6 the Ordinary Li units are sound if unexciting industrial investment. It is clear that the board's decision to reduce the dividend from 33 per cent, to 32 per cent has been made for policy reasons. Net profits would have covered a 33 per cent. distribution with a fair margin to spare, but the board has chosen to raise the transfer to general reserve by £5oo,000 to £x million. It is the old story of high replacement costs, which in this. instance has to be considered not only in relation to fixed assets, but in the matter of stocks.
Much of the interest in the latest accounts is in fact to be found in the stocks item. Although the balance-sheet shows an increase of just over £r million in stock-in-trade to £83,847,935, this reflects higher prices and masks a reduction in quantity. At their present level, stocks are down to the bare minimum and are substantially below what the company regards as desirable for comfortable and efficient working. At the coming annual meeting the President will doubtless refer once again to the question of funding a substantial part of the company's heavy temporary borrowings by means of an issue of permanent capital. Meantime, there is no reason to suppose that the board's views on this subject have altered during the past twelve months. The intention is to make a new issue of Ordinary shares at par as soon as the bonus duty is removed, provided one other condition is satisfied, namely, that the company is assured of the maintenance of its leaf supplies.
BRAZIL RAIL AFFAIRS
So far, stockholders in the Brazilian railways and other utility undertakings which have been the subject of take-over discussions have heard little news of any fresh developments arising out of the visit to London of Senhor Machado, a high-ranking Brazilian finan- cial executive. The first fruits of his visit have been the redemption of the outstanding balance of the San Paulo Coffee Realisation Loan, but no purchase bid has been announced for either the Leopoldina Railway or the Great Western Railway of Brazil, in respect of which negotiations are believed to have reached a fairly advanced stage some months ago. If City reports can be trusted, an offer in the neighbourhood of £ro million in cash has been made for the Leopoldina Company, but it has not yet been accepted. It is also understood that a take-over plan for the Great Western of Brazil includes an offer of cash, plus an investment in a new company in Brazil, which would take over the management. It would be sur- prising, therefore, if, before Senhor Machado leaves London in a few weeks' time, some sort of agreement has not been hammered out. Meanwhile, Leopoldina 4 per cent. Debentures around £84 still look an attractive speculation, in that any reasonable purchase arrange- ment could not fail to include their repayment at par. The £m Preferred and £m Ordinary shares of Great Western of Brazil quoted around ksi also look a good purchase for investors who do not mind shouldering some risk.
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