FINANCE AND INVESTMENT
By CUSTOS
THOSE of us who looked for an early counter-offensive to stem the decline in the gilt-edged market have not yet seen our expecta- tions fulfilled. At times the retreat has almost been a rout, but Mr. Dalton has held his fire. Whether this policy of non-interven- tion was the fruit of Treasury advice or due simply to the impossi- bility of marshalling 'forces to meet a sudden selling wave it is hard to judge. It is greatly in Mr. Dalton's favour that a rally has developed without any official help. I shall be surprised if resist- ance does not stiffen around a level indicating a long-term borrowing rate of 21 per cent. That, in turn, would provide a strong basis for security values as a whole. While industrial share markets have been depressed, there has been selective support for the nationalisa- tion and similar groups. The stocks of the Argentine railway com- panies have maintained a noticeably firm front.
CENTRAL ARGENTINE STOCKS
An attractive purchase is offered by the two Preference stocks and the Ordinary of Central Argentine. This company's share of the £15o,000,00o has been fixed at £40,819,498. If one deducts from that sum the amount required to pay off all the Debenture stocks and the Notes at their full redemption prices, plus the amount of interest arrears, one arrives at a net balance of just over £rr,000,000 available for the junior stockholders. Taking the two Preferences and the Ordinary stock—one can ignore the very small block of Deferred capital—at current market prices, one arrives at a market valuation of £10,5oo,000. It is apparent, therefore, that if one makes a combined investment in the 4-i per cent. First Preference around 3o, the 6 per cent. Second Preference around 4o, and the Ordinary around 20, it is impossible to avoid making a modest profit, how- ever the directors decide to allocate the balance between these three classes of capital.
The margin of about £5oo,000 may not seem to offer much scope for appreciation, but one must remember that this calculation ignores altogether the company's London assets, which may well amount to another £I,000,000, and is also based on the assumption that Debenture and Noteholders will not only receive par but the full amount of their arrears. It may easily turn out that a mixed bag of these three junior stocks may yield a profit between now and the late summer of something over so per cent., which, free of tax, seems to me well worth going for in view of the negligible risk involved.
A CHEAP STEEL SHARE
Although the latest steel output figures bear the marks of the fuel shortage, steel shares have not shown any signs of real weak- ness. Investors now recognise that most of the companies are paying dividends well within earnings, that selling prices are satis- factory and that the steel industry will be given a high fuel priority. Add to those facts the generous yields obtainable in this section of the market and you have a rational basis for the firm undertone. One or two dividend announcements in the past few weeks have made it clear that steel companies are doing good business and that the directors are not unduly worried about the future. Richard Thomas and Baldwins have paid an interim of 5 per cent., which may reasonably be interpreted as pointing to a total for the year of 15 per' cent., compared with 121 per cent. for each of the three past years. Guest Keen Baldwins, in which Richard Thomas and Baldwins has a large shareholding, have raised their Ordinary dividend from 7f per rent. to ro per cent.
Against this background it seems to me that the 45. Ordinary units of Baldwins (Holdings) offer good value for money at the current price of 7s. 6d. This company draws the bulk of its revenue from its holding of 8,500,000 Ordinary 6s. 8d. shares in Richard Thomas and Baldwins, its only other assets being about £2,400,000 in cash and gilt-edged and investments carried at a book figure of £760,224 in the 5 per cent. Income Notes and 6 per cent. Cumulative Preference shares of Guest Keen Baldwins. Taking the current market prices of all these investments and deducting all liabilities, there is a balance which gives a book value of about 9s. 6d. to the Ordinary units. From the capital standpoint, there- fore, a purchase at the current price of 7s. 6d. is well justified. As to income, the company is at present paying an Ordinary dividend of 12+ per cent., so that the yield is the generous one of about 64 per cent. In-,view of the probability of a higher dividend from the Richard Thomas shares this year it seems probable that Bald- wins (Holdings) will raise their own dividend from 12+ per cent. to 55 per cent., in which event a buyer at the present level would be getting a yield of over 8 per cent.
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