FINANCE AND INVESTMENT
By CUSTOS HOPE is again the dominant factor in invest- ment markets, although it has not yet developed into anything approaching real confidence. The assembling of the Com- monwealth Conference was bound to pro- voke some fresh thinking about the pound's problems—and the long-expected move to convertibility—and, to judge from the behaviour of prices, most people feel that something really constructive may emerge. I think it will, but it can scarcely be more than an agreed programme, which must await execution, at least so far as convert- ibility is concerned, until really practical co-operation, not to mention some form of financial underwriting, is assured from the United States. All that can be expected is that the conference will carry us one more stage further on the path to freer world trade and exchanges. The price of gold ? Doubtless, Mr. Havenga will put the case for a higher gold price as forcefully as ever, and he may even succeed in getting the support of Britain and the rest of the Commonwealth Wilily. But I cannot see the United States falling in just yet with this proposal. The U.S. Treasury is. still too scared about inflation. Is it too soon, then, to buy gold shares ? It may be, but at present prices there are good opportunities for the speculative investor who is willing to hold. For the rest of markets I am prepared to see a further gradual strength- ening of gilt-edged prices and that should help to keep industrial equities reasonably firm. As expected, there has been a note- worthy advance in Japanese bonds, and even at the substantially higher levels profit- taking by short-term speculators has been well matched by more solid buying. Eventu- ally, Japanese bonds should settle down at even higher prices, but one must now be prepared for pauses and occasional setbacks.
Eastwoods Capital Needs
Under its dynamic chairman, Mr. George Miller, Eastwoods Ltd., the brick, cement, tile and concrete products manufacturers, go from strength to strength. For the year to March 31st trading profits have reached a new record at £691,369, against £454,613, and earnings on the Ordinary capital work out at nearly 35 per cent, against the 15 per cent, dividend rate. The group achieved higher outputs at all its various manufac- turing points, while the building materials distribution business expanded satisfac- torily and the coal-merchanting interests were further extended. The higher earnings were thus based on record turnover, which itself reflects the benefits of the policy pursued over a long number of years of expanding and modernising the group's plant and equipment. The extent of the Eastwoods group post-war recovery may be gauged from the fact that, taking 1938 as 100, output of ballast has now been raised to an index of 431, cement output to 200, production of tiles to 134 and of bricks to 147. Mr. Miller takes an optimistic view of the outlook, based partly on a conviction that any recession in the export markets is likely to be offset by further expansion in domestic activity. At the same time, he reminds shareholders that under the pressure of increased work the group's cash position has undergone a substantial change. Cash in hand has been run down to £84,000 and bank overdraft, which at March 31st stood at £63,000, has subsequently increased. When it is recalled that over the past six years this group has financed a re-develop- ment programme, costing over £1,500,000 entirely out of ploughed-back earnings, there can be no surprise that the time has now been reached when new financing arrangements must be expected. Fortu- nately, with its £1 Ordinary shares quoted around 45s. 3d. the company is in a position to raise a substantial sum by a " rights " issue on attractive terms. Meantime, the £1 Ordinary units, yiejding 61 per cent, on a well-covered 15 per cent, dividend, are in my view a sound and progressive holding. It may pay, however, to wait a little while before making a fresh purchase until the new financing plan comes along.
Crompton Parkinson Capital The increase of nearly £220,000 to £1,660,040 in the trading surplus of Cromp- ton Parkinson, the electrical engineers, for the year to June 30th is a striking achieve- ment in face of keener competition, especi- ally in overseas markets, and a further rise in costs. In his statement Mr. Albert Parkinson points out that a tendency towards lower profit margins was offset by record production and sales, although the change from sellers' to buyers' markets affected the demand for some of the group's lighter products during the latter part of the financial year. Stockholders will be re- assured by Mr. Parkinson's intimation that for the majority of the group's products demand is still in excess of productive capacity. The consolidated balance-sheet clearly reflects the pressure of increased business on liquid resources. Stock in trade and work in progress have risen over £2 million to a new peak of £7,218,486, and debtors and prepayments are over £500,000 up at the formidable figure of £4,323,914. These changes, together with the further growth of fixed assets and trade investments, have made it necessary for the group to have recourse to bank overdrafts and acceptance credits, which now amount to £2,786,200. Such a position in the case of most com- panies would indicate the likelihood of early new financing to replace part at least of this substantial temporary indebtedness by per- manent capital. The Crompton Parkinson directors still adhere to their view, however, that it is undesirable to raise such capital in this country at present, so long as the basic material supply and prices continue to fluctuate.
" It is difficult," they say, " to attempt to prophesy how the levels of turnover, stock in trade and work in progress will move in the coming year." Crompton Parkinson 5s. Ordinary units now stand around 9s., at which they are yielding just over 6 per cent, on a well-covered dividend. Although I think it will be well to keep in mind the possibility of new Ordinary share financing I think the units should not be sold.
Banking in Scotland Outstanding in the latest balance-sheet of the Commercial Bank of Scotland, dated October 25th, is a sharp fall in loans and advances. Whereas in the preceding year
this item rose by about £8 million to just under £32 million it has now contracted by
nearly £5,5p0,000. This movement is, of
course, in line with the general trend of bank advances and is flanked by a still further increase in this bank's liquid ratio.
What may be termed " quick " assets are up by £8 million to over £58 million, and they now represent no less than 48 per cent. of deposits and 43 per cent. if one adds in the bank's note circulation. The holding of British Government securities has fallen by nearly £3 million to just under £50 million, and it is worth noticing that this bank has adopted the formula of several of the big clearing banks by indicating the market value at the balance-sheet date. In the books the figure is taken at or under cost and below redemption price, whereas the market value was just under £47 million. There was thus a discrepancy of about £3 million, which is amply covered by the bank's published reserves, to say nothing of its inner reserves. Higher costs are reflected in a fall in the net profit for the second successive year at £379,789, against £402,454. This figure is struck, as usual, after all expenses, pro- vision for bad and doubtful debts, contin- gencies, taxation and writing down the cost of property. For the sixth successive year the dividend on the " A " £1 shares (6s. paid) is maintained at 15 per cent., and the " B " £1 fully-paid shares again get their maximum 10 per cent. The " A " shares have latterly fallen a shilling or so and at the current level of 18s. 9d. are yielding just under 5 per cent. They are a sound banking investment.
Barclays (D.C. & 0.) Progress Barclays 'sank (Dominion, Colonial and Overseas) continues to establish new peaks of earning power. For the year to Sep- tember 30th this bank's net profit, after tax, has risen from £769,581 to £879,888. A year ago the bank raised its authorised capital from £10 million to £15 million to bring the capital into line with the increas- ing liabilities arising from the continued expansion of business. The issued capital was increaged by £5,655,375, which was distributed as a free bonus to the " A" shareholders, in the proportion of one-for- four. In addition, a call of £1 a share on the £5 " B " shares, all of which are held by Barclays Bank, was made, and produced £500,000 of new money. With a final of 4 percent. the total distribution on the larger capital is now being brought up to 8 per cent., as a year ago. This involves £389,629, against £299,102, but the higher rate is still covered by a substantial margin of earnings. The transfer to reserve fund is increased from £250,000 to £300,000, while £175,000 goes to premises reserve account, whereas at this time last year £200,000 was applied in writing down the investment in Barclays Overseas Development Corporation. These figures seem to me to underline the growth possibilities of Barclays (D.C. & 0.) 1 " A " shares, whose merits I have often emphasised in these notes. They are now quoted around 33s. 6d., at which they return only about 31 per cent. Investors have the advantage, however, that the net U.K. rate of tax deductible from the divi- dend is only 6s. 4d. in the pound.. I still regard these shares as well worth holding. The bank has already.built up a position of great strength and has alert and progressive management.
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