FINANCE AND INVESTMENT
By CUSTOS THE usual pre-Christmas quietude in stock markets has been accentuated by the uncer- tainties still clouding the outlook. Will the New Year bring a substantial decline in the budget' deficit and a drop in bank deposits ? If so, will it help gilt-edged, or will this market be depressed by selling to pay taxes ? Will the American trade boom continue, and for how long ? Will it reverse the downward trend in commodity prices ? Will there be a further recovery in home trades such as textiles ? Will the dollar price of gold be raised ? Some of these questions should be resolved soon; others may abide our question for many months. MeanWhild the market undertone remains firm, and the few down- ward movements have been due to special rather than general causes. Japanese bonds, for example, came back on the World Bank's chilly attitude to a loan to Japan and a statement that Japan's sterling holding is likely tq,.fall sharply in the next three months. Elsewhere the crop of com- pany reports has been mixed, with a growing number showing lower profits ; woollen exports have improved ; the detergent war is still in progress, and the early return of the branded petrols may herald a new marketing war. Yet the Chancellor seems confident and is even exhibiting symptoms of optimism, which is not invariably a healthy sign.
Gold and Uranium One of the firmest markets has been that in gold shares. Fears about the franc have caused buying from Paris, and the mining finance houses may have indulged in some window-dressing for balance-sheet purposes. Buying has also been encouraged by Mr. Havenga's optimism about the future price of gold, reports that some European Central Banks are converting dollars into gold, and suggestions that General Eisenhower and his financial consultant, Mr. Randolph Burgess, favour a rise in the gold price. 1 am doubtful about this last suggestion. Both are sound-money men and may wish to restme convettibility of the dollar into gold ; but this objective may be postponed if it involves a higher gold price. There is, nevertheless, an important body of opinion. in America which is strongly in favour of a substantial restoration of the gold standard because of its stabilising effect on inter- national trade: and still more because of its restraining influence on inflation-prone Governments. If Britain and other countries were to participate, America might agree to a rise in the price of gold and the redistribu- tion, in the form of loans, of part of her gold stock to ensure convertibility of currencies.
While these hypotheses are„ interesting, I cannot advise purchases of gold shares just yet without reservations ; but I should not oppose moderate speculative purchases of low-grade producers such as Springs at 7s. (yield 7 per cent.), Robinson Deep at Ils. 6d. (yield 101 per cent.), Brakpan at 16s. 6d. (yield 81 per cent.), Randfontein at 26s. 9d. (yield 6i per cent.). Too much attention should not be paid to these yields, for if the price of gold, remained unchanged and costs
rose sharply, it might be necessary to omit dividends on these shares. If, however, the gold price were raised by 50 per cent., the profits of these mines should be multiplied several times. Randfontcin, incidentally, will be a big producer of uranium from 1955, and future profits from this source are estimated at between Is. and 2s. a share. For those who prefer shares on which reasonable dividends can be expected even if the price of gold is not raised, 1 suggest Western Reefs at about 44s. 3d. to yield 51 per cent. This is a low to medium grade mine with a long estimated life, currently paying dividends of 2s. 6d a share. Produc- tion of uranium will start next year, and it is estimated unofficially that an extra 9d. to Is. per share will be earned from this source.
A Paper Equity • Most paper manufacturers enjoyed un- precedented prosperity in 1951, but some have recently suffered losses, and almost every company in this group is bound to show a sizeable reduction in earnings for 1952. Some, no doubt, will fare better than others ; and I imagine that Spicers, the famous makers of writing, drawing, printing. currency and security papers, as well as envelopes and account books, should be in this category. A large part of Spicers' paper output is used by printers, whose demand has held up fairly well. Last year no less than 439 per cent. was earned on the Ordinary capital so that the 171 per cent. distribution was covered twenty-five times. Stockholders have since received a 100 per cent. share bonus, the dividend equivalent on the doubled capital being 8i per cent. On this basis the £1 Ordinary units, now about 34s., yield £5 3s. per cent. This is not a high return, but it may be noted that a distribu- tion on this scale would be covered over eight times if the earnings for 1952 are only one-third of the 1951 level. The actual profits, of course, may depend to an appreci- able extent on hocv much depreciation has to be provided on stocks which stood at £4,422,000 in the last balance sheet. This is a large amount, and a drop of 20 per cent. in their value might halve the trading profits. If it were not for this possibility, the Ordinary units would have obvious attrac- tions at 34s., for their net asset value, based on the last accounts, is 94s., or two and three- quarters times the price of the units. What- ever may be the short-term experience, however, the Ordinary units should be a satisfactory long-term investment.
Beralt's High Yield Beralt Tin & Wolfram 5s. shares have dropped to 32s. 3d. since the announcement of an interim dividend of 80 per cent., com- pared with two interim totalling 70 per cent. Shares, of course, often fall in price when a higher dividend is announced. In this case some buyers had been " going for " 100 per cent., and the declaration was disappointing, while the market was also affected by the director's warning that the higher interim payment should not be taken as an indica- tion of the total distribution for the year. The Board, no doubt, have been influenced by the drop in the. price of wolfram in the past year and by the recent increase in the free world's output. Before the outbreak of the Korean war, the price of wolfram was. only about £7 a unit. In February, 1951, it went up to £33, but has since come back to about £21. Unless production expands very considerably I should not expect the price to drop back to the pm-Korean level. Tungsten (which is produced from wolfram) has a very high melting-point and is used in producing extremely hard steel alloys for high-speed tools, armour plate, and armour- piercing projectiles. Another important use is for filaments in electric lamps, radio valves, television tubes and electronic devices. The electronic industry is still in the early stage of growth. The use of electronics in guided missiles is generally known, and new applications in industry, communications and medicine are constantly being discovered. One firm alone claims to produce in one month almost as much fine tungsten and molybdenum wire as the whole of Britain's annual output twenty-five years ago.
The current price of Beralt includes 2s. I id. net dividend, so that the ex dividend price:is about 30s. lid. Even if the final is only 80 per cent. making 160 per cent, against 200 per cent., the shares at this price would yield over 26 per cent. They are admittedly speculative, but the company enjoys favour- able forward contracts for the sale of part of its output to the U.S. Government at fixed prices up to 1957 and of a further part to the U.K. Government at ruling market prices (subject to agreed floor and ceiling prices). The company's policy is to mine the lower grade ore, so far as possible, while the price of wolfram is high. Another point in favour of Beralt is the strong cash position. At March 31st, 1951, net liquid assets amounted to nearly 15s. a share. Beralt should still have attractions for the speculative investor.
Housewives' Choice Most American-controlled concerns operating in Great Britain enjoy well- earned reputations for efficiency and enter- prise. A case in point is Platers and Stampers, whose products are familiar to every housewife, for it makes pressure cookers, kitchen knives and gadgets, scissors, strainers, sifters, egg beaters, tin openers, bathroom fittings and electric torches. These are sold under the trade names Prestige, Sky-Line, Ekcomatic, Ovenex, Kumfi-Kut and True-Spot. The company is controlled by Ekco Products of Chicago, the largest manufacturer of " housewares " in America, and the English company enjoys the use of certain patents, as well as the technical knowledge gained in sixty years by the parent company. Profits have grown rapidly since 1948, when Platers and Stampers became a public company. Last year 130 per cent. was earned on the £520,000 Ordinary capital, so the 25 per cent. dividend was covered over five times.
The 5s. Ordinary shares can be bought around 19s. 3d. to yield nearly 61 per cent. This seems attractive in view of the scope for a higher payment if earnings maintain their good progress. Operations in 1952 have probably been handicapped by shortages of steel and other metals and by higher costs, but the substantial defence orders on which the company is engaged should have enjoyed priority for raw materials. Exports of the company's products to dollar countries have expanded, from which it is clear that the products are keenly competitive in price and quality. The shares can, I think, be regarded as a " growth " stock with long-term possibilities of capital gain and higher dividends.
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