FINANCE AND INVESTMENT
By CUSTOS A Ham pound in the foreign exchange market, reinforced on the domestic front by the Chancellor's hint of the possibility of some modest reduction in taxation next April, is helping on the recovery in gilt- eCged prices. If it were not for the threat to our external stability of falling exports and to our internal finances of the growing ' excess of Government expenditure over revenue one could predict that the rise would continue. As things are, I think it would be wiser to look for a firm rather than a strong gilt-edged market and in the equity field the need for discrimination is as great as ever.
Courtaulds Interim Surprise If the industrial market has failed to achieve any noteworthy rise, it has not been for lack of encouraging dividend 'announcements. While on the one hand Mr. Leonard Lord has been sounding an alarm about the prospects of the motor manufacturing trade, there have been a number of dividend decisions calculated to raise modest hopes that in those branches of industry about whose prospects investors have been most doubtful the worst may have been seen. Few people can have expected after the warning note sounded by the board of Courtaulds that this leader of the rayon trade would maintain its interim on account of the year ending March 31st next at 5 per cent. on the £24 million of Ordinary stock. This decision, taken on the basis of the trading results for the half-year to September 30th and also immediate trading prospects, seems to me' to be dis- tinctly reassuring. Admittedly, the board emphasise that the announcement does not carry with it any implication with regard to the final dividend, which will be decided when the complete accounts for the year are available, but it obviously does imply that the board's worst fears have not been realised and that there is at least a reasonable chance that the total for the year will be maintained at last year's level of 114 per cent. Following the announcement, Cour- taulds' £1 Ordinary units have improved to 36s., a level at which they are yielding about 6 per cent.
Marks and Spencer Decision The same sort of reassurance comes from the board of Marks and Spencer, the chain store proprietors, who announce an interim of, 15 per cent. on an Ordinary capital which has been doubled by 100 per cent. scrip bonus. In maintaining the interim at the same rate on a doubled capital the directors emphasise that their decision has been taken with the object of providing a more equal division between interim and final dividends and must not be taken as indicating any change in the total, but share- holders will keep in mind that last year's total distribution of 80 per cent. was amply covered by earnings. This company has doubtless been faced by rising costs, but it also appears to have derived continuing benefits from more efficient management and, one would imagine, from trade gained from competitors. While it would obviously be unwise to look for a substantial increase in the amount paid out in dividends, the maintenance of the interim on the doubled capital seems to me to carry with it at least a probability that something more than one- half of the old 80 per cent. rate will be forthcoming. This sort of assumption is doubtless responsible for the firmness of Marks and Spencer 5s. " A " Ordinaries around 45s. At this price the yield on a 40 per cent. rate, which would be the exact equivalent of the previous 80 per cent., would be just under 44 per cent. If, as seems by no means unlikely, the rate is put up to 50 per cent. the return would be as high as 54 per cent. In the light of the interim decision holders will, in my view, be unwise to sell.
Hawthorn Leslie Dividend The 10s. Ordinary units of R. & W. Haw- thorn Leslie, the Newcastle-on-Tyne ship- builders and engineers, are well known to investors as one of the soundest equities in that particular field of industry. The latest results help to reinforce this favourable view. For the year to June 30th trading and other profits have risen by £229,000 to a new peak of £830,000, and although taxation has called for £160,000 more at the depressingly large sum of £442,000, including a charge for Excess Profits Levy of unstated amount, the directors have raised the Ordinary dividend from 12 per cent. to 15 per cent. The higher payment is amply covered and is consistent with the raising of the transfer to general reserve from £140,000 to £180,000. There is nothing in the report which gives investors much guidance as to the course of trading in the past year, or the outlook for the future, but it is safe to assume from the board's decision to raise the dividend that the group has a healthy order-book. Increased steel supplies will also help to reduce costs and' speed up deliveries. Following the satisfac- tory results, Hawthorn Leslie 10s. Ordinaries have improved to 23s. at which they yield about 64 per cent. In the light of the company's past achievements, its strong finances and promising earnings outlook, the shares can be regarded as a first-class shipbuilding investment.
" Emmies " Profits Fall When they made their " rights" issue at the beginning of this year the directors of Electric and Musical Industries warned shareholders that they must not expect earnings to be maintained at recent peak levels. They also forecast, however, that it should be possible to maintain the 12 per cent. dividend on the larger capital ranking. Both these forecasts are now fulfilled. The company's preliminary statement for the year to June 30th shows that combined trading profits of the subsidiaries operating in the United Kingdom and British over- seas territories fell from £1,995,000 to £1,542,000, or by a little over 22 per cent. Net profit is down from £663,000 to £402,000. The total income of the group has been helped considerably by better results from the foreign domiciled subsi- diaries, which have provided dividends of £140,000, againsTt £89,000, and whose net profits have risen from £283,000 to £467,000. The 12 per cent. dividend on the parent company's Ordinary capital appears to be covered nearly twice over, and in judging the outlook one must take account of the recent signs of some revival in the radio trade and the company's potentialities in the • defence field. The 10s. Ordinaries now standing around 14s. 6d. offer a yield of not far short of 8 per cent. Although they are speculative, they do not look to be to me over-valued.
Allied Bakeries Expansion In the face of keen competition and rising costs Allied Bakeries, the £15 million group of which Mr. W. Garfield Weston is chair- man, has done well to increase its operating profits from £3,732,044 to £4,366,533. This seems to me a creditable achievement even allowing for the fact that during the year the group continued its expansion policy and acquired new businesses. This is reflected in the balance-sheet in a rise of over £900,000 to £3,409,925 in stocks and a jump in total assets of over £2 million to £15,256,056. Cash is down by nearly £200,000 to £396,312 and unsecured bank advances have jumped by over £900,000 to £1,590,871. One is tempted to the conclusion that the time cannot be far off when the company will seek to replace some of these temporary borrowings by more permanent capital. It is doubtless also the need to conserve resources that has dictated the company's distribution policy, the Ordinary dividend being merely maintained at 30 per cent. although it is covered by a very large margin of earnings. Quoted around 30s.
Allied Bakeries 5s. Ordinaries are priced to yield about 5 per cent. Having in mind the possibility of a new issue to raise fresh working capital, I regard the shares as fully valued for the time being.
Richard Crittall Recovery Under the capable direction of Mr. Geoffrey Eley, Richard Crittall & Co., the heating and ventilating engineers, are now making a strong recovery after the drastic reorganisation of 1949. On the strength of a further increase in earnings, dividends on the £350,000 of reorganised Ordinary capital are being resumed with 10 per cent., a payment which is well within the available net profits. Trading profits for the year to June 30th have improved from £23,246 to £63,351, and profit, after tax, is up from £16,933 to £47,867. While the Ordinary dividend calls for only £18,375 net, £50,000 is put to general reserve. In his statement Mr. Eley sets on record several favourable developments. One is that the turnover of the original group of companies rose during the year by over 60 per cent. and that the orders necessary to support this increased level of activity have been booked. He also discloses that surplus liquid resources have been applied in acquiring the share capital of Z. D. Berry & Sons, an old- established firm of heating and ventilating contractors. The one item in the accounts which may cause shareholders some slight disappointment is the emergence of a bank overdraft of £33,762. Naturally, this reflects the pressure of increased work on cash resources, but it also points to the possibility that new capital may have to be raised at some later stage. Meantime, however, Richard Crittall ls. Ordinaries, quoted around Is. 9d. to yield about 54 per cent. on a well-covered dividend, do not look dear as a long-term holding for gradual apprecia- tion. There is always the chance of a merger with a larger undertaking.
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