FINANCE AND INVESTMENT
By CUSTOS
DISPLAYING his now familiar stoicism, that essentially patient and long-suffering animal, the average investor, seems to have already gone part of the way towards ignoring the disappointing Budget statement. Although markets are far from buoyant, they are, for he most part, firm and the volume of investment business has shown some signs of increasing: Some of the buying orders now coming forward doubtless represent business which was postponed pntil the Budget changes were known, but I should expect a gradual expansion of turnover in the coming weeks. Before very long we hall have a large electricity loan to enliven the gilt-edged market, I d a revival, on modest lines, of industrial issues cannot be far 'off. For the discriminating investor there should be useful iopportunities at the current level of prices.
Record Steel Earnings The benefits of plant modernisation and the steady rise in output
11 re now being clearly reflected in the profits of the iron and steel ndustry. Guest Keen Baldwins have achieved an increase in gross arnings of about £300,000 and Stewarts and Lloyds, the steel tube akers, have sprung a real surprise by announcing an increase in onsolidated group profit for 1949 of nearly £2,500,000. Last year's rofit total of £7,803,994 was a new record, which the directors tnxplain has resulted from greater efficiency and a 25 per cent. crease in the output of steel tubes and fittings from the group's arious works in this country. In making their preliminary state- ment the Stewarts and Lloyds board give an appropriate reminder 'hat the group's post-war development plan, begun in 1945, has ow involved a capital outlay of over £12 million. Unfortunately, the company is precluded under the provisions the Nationalisation Act from declaring a higher dividend. For the thirteenth successive year holders of the Deferred Ordinary tock get a dividend of 121 per cent. This payment is covered by earnings of about 70 per cent. . As a year ago, £1,500,000 is pro- vided out of profits for obsolescence, and another £1,000,000, against £1,250,000, is allocated to general reserve. It seems a little odd, in the light of figures such as these, that at 52s. 3d. the £1 Deferred units should still be quoted in the market well below the proposed take-over price, under the iron and steel nationalisation plan, of 57s. 4d. On the company's earnings record and in relation to the strength of the assets position the take-over terms must be Considered far from generous. At 52s. 3d. the units are offering a yield of approximately 41 per cent. on the present dividend, which, as I have pointed out, is covered by a very large margin. It seems to me that the market is under-valuing these shares.
Vickers' Dividend Decision Another heavy industry undertaking which did well last year is Vickers Limited, the shipbuilding and engineering concern. Net profit of the group was £3,290,724, against £3,373,948, but it was arrived at after charging £4,458,602, against £3,090,092, for U.K. taxation. The inference is that the gross profits of the group, before tax, showed a substantial increase. Net profit of the parent com- pany, in which the investor is directly interested, was up from £1,429,382 to £1,625,400, but the Vickers board has decided to give expression to dividend restraint, at least for the time being, in an unchanged dividend. This year's payment is 61 per cent., which is the exact equivalent of the 124 per cent. paid for the preceding year before the Ordinary capital was doubled by the 100 per cent. scrip bonus. Although this decision will doubtless come as a disappointment to many Ordinary stockholders, it is only fair to add that the chairman gave a plain warning last May that the 100 per cent. capital bonus did not carry any implication of a larger total payment. The parent company is paying £677,872, against nil, to reserve, and the carry-forward of the group is over £1,700,000 up at £8,573,024. Following the dividend announce- ment, Vickers' £1 Ordinary units have been fairly steady around 28s., at which the yield under a well-covered dividend is about 44 per cent. The units are worth holding.
Insurance Prosperity Thanks partly to devaluation and partly to the much better experience in the United States, the composite insurance companies are announcing excellent figures for 1949. New records, both as regards premium income and profit, are disclosed in the full accounts of the London and Lancashire Insurance Company. Total premiums were up last year from £16,333,159 to £17,918,590, and net underwriting results yielded total profits of £1,742,609, against £1,319,305. The total distribution on the Ordinary stock is main- tained at 4s. 6d per £1 unit, and the paid-up capital and reserve funds, excluding life funds, are now shown at £25,629,258, or 143 per cent. of the premium income. 'In his statement Sir Arthur Rogers make the point that the increase in the sterling value of the company's substantial investments in America and Canada has added materially to the excess of market value of the company's total investments over the book value. This hidden reserve now amounts to £8,000,000.
A similarly strong position, both as regards balance-sheet values and underwriting results, emerges from the latest accounts of the Employers Liability Assurance Corporation. As a result of devaluation, this company has made substantial additions to insurance funds and inner reserves. In this instance shareholders may be disappointed that the net profits of £487,800 have not resulted in a higher dividend. As for many years past, the pay- ment is maintained at 3s. 6d. a share, which absorbs only £148,100. Quoted around 92s., the £1 shares (Ss. paid) are yielding just over 31 per cent. This is, on the face of it, a small return, but justified by the earnings record and the very large proportion of the company's business which is transacted in the dollar area.
Good Rubber Yield With the commodity up another 2d. a pound to just under is 10d rubber shares are still claiming most of the speculative limelight in Throgmorton Street. This section of the market has witnessed a larger turnover than for several years past, to the accompanimdnt of much statistical calculation, of prospective earnings and divi- dends at the higher range cif selling prices. Among the companies whose shares still look cheap on their solid merits is Sogomana Rubber Estate, a-low-cost Malayan producer. For the year ended June 30th, 1949, on an average realisation price for its rubber of just under 10+d., this company earned just over 40 per cent. on its capital and paid a 30 per cent. dividend. It is a simple calculation which shows that on its present crop each additional penny per pound profit represents an extra 9 per cent. earned on the £100,000 of issued Ordinary stock. If, therefore, one assumes that for the current financial year ending June 30th, 1950, the company obtains an average price of ls. 3d., earnings should come out at about 80 per cent. On a price of Is. 6d, which is still nearly 4d below today's level in Mincing Lane, the company would earn well over 100 per cent.. Quoted around 8s., the 2s. units give the attractive yield of 7+ per cent., even on the 30 per cent. dividend paid in each of the past two years. If, as seems probable, shareholders can now look forward to dividends of say 50 or 60 per cent., the units should have scope for a substantial improvement' in value.
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