FINANCE AND INVESTMENT
By CUSTOS MARKETS are now taking a breather after suffering their nastiest jolt for some months past. In actual volume selling has n(Oeen heavy but on one or two days it has been insistent and that brings prices down dis- proportionately when there are few buyers about. What has upset the balance of mar- kets? First and foremost, the re-emergence of the gap in Britain's balance of payments which points unmistakably to fresh measures to close it. Then there is the return of Japan and Germany as competitors in many branches of the export field, to say nothing of reports of growing consumer resistance to high prices, especially in textiles. Until Mr. Gaitskell has had his say the great majority of investors have understandably decided that discretion is the better part of valour and have kept to the side-lines. Selling has come mainly from professional speculators who have attempted to snatch profits and-from the " bears" who have been quick to sense the change in sentiment. As I write, the ball is still in Mr. Gaitskell's court. If he refuses to allow his economic judgment to be swayed by political pressure from the extreme Left investors have little to fear. Doubtless he will utter dark warn- ings about dividends but if he refrains from adding still further to the Profits Tax and from imposing statutory dividend limitation markets should recover on selective lines.
Courtaulds 'U.S. Plan The Courtaulds annual meeting has come arid gone and stockholders have been left without fresh news of any plans the directors may have in mind concerning either a share bonus or the raising of fresh capital. I would imagine that any new financing is at least some months ahead and it may well be that the directors would prefer to seek official approval of a scrip bonus as part of a wider Man for obtaining new permanent capital for the group's important projects. That the Courtaulds board is not allowing the grass to grow under its feet is apparent from the company's re-entry into the American field on a substantial scale. At the meeting Sir John Hanbury-Williams revealed that the new company in the United States—Courtaulds Incorporated—which is expected to start production in 1953, will involve a sum sub- stantially in excess of $10 million. He made no forecast as to when this American sub- sidiary would be on a dividend-paying basis but recorded his confidence that one day it would be a good dollar earner for Britain, as well as a good investment for the parent company. It has a special importance as re-establishing Courtaulds' old connection with the American textile industry, which was broken by the forced sale of the Ameri- can Viscose investment in 1941.
Another point which emerged from Sir John's review was that British Nylon Spinners, the £8 million undertaking in which Courtaulds have a 50 percent. interest with Imperial Chemical Industries, paid a 20 per cent, dividend for -1950. Altogether, an encouraging survey, which underlines the investment merits of Courtaulds' Ordinary stock. The £1 units, which have recently been up to 54s. 6d., are now standing around 515. At this level.- yielding nearly 41 per cent, they are among the best industrial holdings. . Courtaulds is still a growing company.
United Dairies Dividend A year ago the directors of United Dairies announced a modest increase in the Ordinary dividend. Now they have decided once again to step up the rate, which is covered by an ample margin of net earnings. For the year to March 31st the total distribution on the Ordinary stock is brought up to 15 per cent., against 121 per cent. Group profit, after all charges, comes out slightly lower at 1954,595, against £968,549, but the point to notice is that it has been struck after providing £1,883,813. against £1,619,513, for taxation. Clearly, profits, before tax, rose by about £250,000 and easily established a new record As a year ago, £250,000 is being ploughed back into the business by means of a transfer to general reserve. United Dairies £1 Ordinary units quoted around 63s. have latterly been discounting some increase in the dividend rate. On the 15 per cent. rate now announced the yield, allowing for the final dividend included in the price, is just short of 5 per cent This seems to me to be an attractive return on the equity of a strong company with progressive ideas. The dividend is covered by earnings of well over 40 per cent.
Spurling Dividend Surprise
It is common enough in these days for companies showing even slightly increased profits to announce a modest rise in dividend. It is rare for a company to announce a reduction in dividend in face of higher earnings. This unusually conservative policy is being followed by Mr. W. F. Spurling and his co-directors, of Spurling Motor Bodies. For the year to February 28th trading profits of this progressive group were up from £182,710 to £190,264 and profits, after depreciation, etc., were also higher at £167,179, against £154,114. Against this background it is not easy to understand the board's decision to reduce the Ordinary dividend from 37+ per cent to 30 per cent., a step which makes a net saving of less than £11,000. The explanation is not that the board is looking for lower profits in the current financial year. On the contrary, Mr. Spurling in his detailed annual state- ment emphasises that all departments remain veryokbusy, that some selling prices have been increased with a view to improv- ing the ratio of profit to turnover, and he concludes that "providing no exceptional setbacks take place our barometer is set fair." Why, then, the dividend cut ? The answer provided by Mr. Spurling is that increasing business at a higher level of prices is imposing severe strains on the group's liquid resources. A glance at the consoli- dated balance-sheet shows that cash has been drawn down from £70,957 to £12,904, while bank overdraft emerges at £8,416. Apparently this drain on liquid capital has been judged sufficient to justify a reduction in the payment made to the Ordinary share- holders.
This seems to me an odd method of reacting to what, after all, is a familiar phenomenon in present-day company finance, especially since this company has already obtained the consent of the Capital Issues Committee to undertake new financ- ing. For the moment the Spurling group is content to await more settled conditions before formulating its new financing plans, but they will doubtless come along in due course. Meantime, the 4s. Ordinary shares are quoted around 10s. 9d. to give a yield of approximately 11 per cent. on the 30 per cent, rate of dividend. In my view, having regard to the group's successful trading history, its close connections with Vauxhall Motors and its progressive management, the shares are now good value for money.
Phoenix Oil Pay-out Nearly two years have passed since I called attention to the attractions, for their repayment . prospects, of the £1 Preference shares of Phoenix Oil Products. These shares were then quoted around 6s. 9d. and it seemed likely that there would be no long delay in implementing the board's forecast of a cash repayment of 7s. 6d. As so often happens, delays crept in and it is only now that a cash payment is forthcoming. Fortu- nately, it turns out to be well worth waiting for, in that shareholders are to receive 10s.
• a share. Moreover, this is described as a first liquidation distribution. After the 10s. payment the company will still have on hand about £47,000 which, on the £600,000 of Preference capital in issue, represents just over Is. 6d. a share With the shares quoted in the market around 10s. 6d. I think holders would do well to refrain from taking the tempting profit. They should collect the 10s. payment, retaining their residual interest.
A Cheap Rubber Share
After its rather sharp setback from the peaks touched earlier this year rubber is staging a recovery in the commodity market and rubber shares are also beginning to attract fresh buying. Quoted around 4s. the commodity is now at its best level since May and is still substantially above last year's average quotation of 2s. 9d. a lb. At current quotations on the Stock Exchange many leading rubber shares can now be bought to yield something. over 20 per cent, even on dividends paid out of profits earned with the commodity well below today's price. Obviously, yields on this scale discount a substantial reduction in profits and divi- dends, and it will be surprising if share prices do not improve during the autumn months, when the acceleration of the rearmament programme should be giving fresh support to the commodity markets.
Among the shares which look cheap from a speculative standpoint at today's levels are Harpenden (Selangor) £1 Ordinaries quoted around 19s. 9d. This Malayan producer has just announced profits for the year to March 31st of £33,959, against £9,431, struck after providing £58,099, against £10,612, for taxation. The board is putting £10,000, against £3,000 to replanting reserve and 0,000, against nil, to general reserve, and at the same time is increasing the Ordinary dividend to 25 per cent., a payment which is covered by a large margin of earnings. Quoted just under par—and the price still includes Is. 60. net per share of final divi- dend—the shares look to me attractively priced to yield over 25 per cent.
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