FINANCE AND INVESTMENT
By CU STOS
THE year is closing quietly in the stock markets, a,.. is appropriate to surrounding conditions. Balancing the performance of security prices against the main factors in the market equation I regard 1950 as a satisfactory year. If it has failed to produce anything spectacular in the way of capital appreciation—there have, of course, been a few exceptions—it has not left many serious scars. World- wide inflationary pressures have sustained not only commodity prices but the values of most investments as well, as investors have shown themselves tough enough to stand up to international political shocks in a way that would have caused astonishment ten or twenty years ago. What of the outlook ? Obviously, it is far from assured. International uncertainties still raise large questions for 1951, but assuming nothing worse than the tepid war or merely localised hot war I do not think the prospects are bad. Rearmament will bring its problems of industrial adjustment and some increase in taxation, but profits as a whole should remain high. A dis- criminating buying policy should still be justified by events.
Raleigh Industries Dividend One by one the larger industrial companies are stepping up their dividends to accord with the more rational view of dividend limita- tion which is less concerned with a slavish adherence to previous rates than with moderation and restraint. The increase from 20 per cent. to 25 per cent. in the Ordinary dividend of Raleigh Industries, the cycle manufacturers, is well justified by earnings and by the strength of the company's financial position. The net profit of the groUp for the year to August 26th has risen from £1,331,554 to £1,588,627, a clear indication that the go-ahead policy pursued by the management, both in home and export markets, has met with its reward. After charging taxation the available net profit works out at £688,764, against £583,147, and represents earnings of well over 90 per cent. on the Ordinary capital. The 25 per cent. distri- blitiOn is therefore consistent with further large allocations to reserves. General and other reserves receive transfers amounting to £449,560, against £400,000 a year ago, and total reserves and surplus have now reached the formidable figure of £3,410,118, or nearly three times the issued Ordinary capital. Following the announcement of these results, Raleigh 11 Ordinary shares have moved up from 84s. to 87s. 6d. On the, 25 per cent. dividend they now yield 5+ per cent., or about one per cent. more than the return available on most ".blue chip " industrial equities. In my view, the higher return is called for by the risks inherent in the cycle trade, but bearing in mind the strength of the earnings cover, the alert management and the strong balance-sheet I would not advise holders to sell.
Brown, Bayley's Proposals
Shareholders in Brown, Bayley's Steel Works have the satisfaction, with only six weeks to go- before vesting day, of receiving details from their board of an assets segregation scheme. By agreement with the Ministry of Supply the company is being allowed to retain certain assets, the most important of which are the large shareholding in the Hoffmann Manufacturing Company, an invest- ment in the Famley Iron Company and the holding in Brown, Bayley's (South Africa). The scheme involves, of course, a reduction, on an agreed basis, of the compensation to be received by the company under the nationalisation plan. Against the price originally receivable of £2,328,750 the amount now payable in British Iron and Steel Stock will be £1,128,750 on February 15th. Both the Preference and the Ordinary shares will be removed from the take-over list and their fortunes will now depend on how the board treats the two classes of capital in relation to the retained assets. So far as the Preference holders are concerned, they are not likely to object to the segregation scheme, since the directors are proposing to pay off the Preference holders at 35s. a share. This compares with the 33s. 9d. in British Iron and Steel Stock which would have been payable under nationalisation. Ordinary share- holders, who would have received 99s. per £1 share in British Iron and Steel Stock, may find their position more difficult to analyse. From the assets standpoint all seems to be well, in that, taking the assets values attributed to the retained assets in the board's circular, the break-up value of the £1 Ordinaries seems to be about £6 a share. ' In the market the response to the proposals has also been encouraging, in that the £1 shares are now quoted at around £5 12s.
The Hoffmann Interest
It is on the side of prospective earnings that Brown, Bayley's Ordinary shareholders may feel that the board's circular might have provided more information.- All that the directors vouchsafe is that, subject to the continuance of reasonable trading conditions and providing taxation continues on its present basis, profits of the group should enable the present dividend rate of 12 per cent., free of tax, to be maintained. They also point out that after repayment of the Preference shares there will be a balance of approximately £225,000 of British Iron and Steel Stock which would be sold for reinvestment on a better yield basis. These assurances will doubtless go some way towards persuading the majority of Ordinary shareholders that they have nothing to lose and, indeed, have something to gain from the segregation scheme. One inference which it seems to me may reasonably be drawn is that to improve Brown, Bayley's dividend prospects the dividend of Hoffmann Manufacturing, the important subsidiary, may be increased. There is an ample margin for such an increase in this company's recent profit figures. For 1948 the 7f per cent. tax free dividend was paid out of earnings of 66 per cent. For 1949, earnings of just under 60 per cent. went against the 7+ per cent. dividend. Now that Brown, Bayley's own dividend prospects will be so largely dependent on the revenue received from the investment in Hoffmann it will surely not be surprising if the Hoffmann payment is stepped up. The £1 Ordinary shares of Hoffmann Manufacturing are now quoted around 95s., at which the gross yield on the present, dividend is little more than 3 per cent.
London Electric Wire
Among the companies raising new money by means of a " rights issue and whose shares now seem to present a good buying opportunity is London Electric Wire. To finance a capital expendi- ture programme and the carrying of large stocks at today's high prices this company is raising approximately £630,000 by issuing to the Ordinary shareholders nine new £1 shares at £2 each for every' 20 shares at present held. One can now buy the new shares, nil paid, at 7s. in the market, which means that a buyer is incurring the liability to pay £1 a share not later than January 16th and another £1 on or before February 15th. The total purchase price when the instalments have been met is thus 47s., the new shares having the attraction that there is no transfer stamp. In each of the past four years this company has paid a 10 per cent. dividend out of earnings which have ranged between 25 per cent. and 88 per cent. Large sums have been ploughed back into the business and it is only now that new money is being sought from the share- holders. The results for 1950-will not be announced until next spring, but meantime the directors estimate that profits will sub- stantially exceed those of 1949. On this basis it is safe to estimate that a 10 per cent. dividend on the larger capital ranking will be covered by a wide margin of earnings. It may well be that a modest increase in the rate will be announced next week. Meantime, at 47s. the yield on the 10 per cent. dividend rate is just over 41 per cent. These new shares should prove to be good value for money.
Cash at a Discount I have referred on several occasions in the past to the speculative merits of the Ordinary shares of Steaua Romana (British), the oil undertaking, whose physical assets have been seized by the Rumanian Government. A repayment of 5s. 6d. a share was made in November, 1949, and the present Ordinary shares, which are now of 14s. 6d. denomination, are quoted around Is. This is a cautious valuation of the assets position, since the latest balance-sheet, dated June 30th, 1950, shows the company to be possessed of investments in London, chiefly gilt-edged stocks, with a market value of £160,000. On the £1,450,000 of Ordinary capital this represents approximately Is. 8d. on the 14s. 6d. Ordinary shares. It follows that a buyer of the shares around Is. is buying the company's cash at a substantial discount. He is also acquiring, of course, a stake in the company's claim against the Rumanian Government. In his statement made in November the chairman pointed out that the company is actively continuing the pursuit of its claim under the Rumanian Peace Treaty and that close contact is being maintained with other British companies interested in the Rumanian oil industry and with H.M. Government.
Previous page
