Investment Incentives
Brokers have been working out the effect on company earnings of the loss of the old invest- ment allowances. The television-rental companies do not seem to be disturbed. The chairman of RADIO RENTALS thinks that 9d. to Is. on the weekly rental would 'mend the situation' and maintain the cash flow. In the leisure industries, BUTLINS and RANKS Would be adversely affected. Taking corporation tax at 40 per cent and with no allowances or grants, Butlins and Rank Or- ganisation dividends would just be uncovered. The fact that the price/earnings ratio would be as high as 17.8 for Butlins and 33.3 for Rank suggests that these shares are vulnerable, par- ticularly Rank 'A' to yield only 3.6 per cent. Another loser from the new investment set-up is LYONS; whose dividend would also be un- covered. Lyons 'A,' with a price/earnings ratio of 20.6 to yield 5.1 per cent, seems fully valued. The great ICI is a borderline case. With cor- poration tax at 40 per cent, the dividend will only be marginally covered. ICI will, of course, re- ceive very large investment grants, but these have to be treated as a capital receipt and are not available, as were investment allowances, for distribution to the equity shareholder. As ICI at 43s. 3d. yield 5.8 per cent, with a price/ earnings ratio of 17, the shares may be able to hold their price, but they are not likely to attract neW investment buying while the profit squeeze It on.
Previous page
