FINANCE AND INVESTMENT
By CUSTOS
I HAVE long thought it possible that the Iron Curtain countries would launch a genuine peace offensive just when America was reaching the peak of expenditure on defence. By so doing they might hope to cause a sudden slump and thus spread Communism throughout the world more effectively than they. could do that either by the methods employed since the war or by starting a third world war which would certainly devastate their main cities and industries. Whether this is the motive behind the latest peace overtures and whether the results will achieve their hopes remain to be seen. Alternatively, it is possible that the new rulers of Russia and China may have reached the conclusion that they cannot hope to win a worfa war and that world peace it essential for the rebuilding of their economies. A reduction of the Western Powers' defence programme is out of the question, but both Wall Street and the London stock markets appear to be discounting the possibility of an outbreak of peace in the fairly near future. Hence the declines this week in the stocks of companies engaged on defence orders and in base metal and vulnerable commodity shares.
Insuring Against Peace ,
Gold mining shares, on the other hand, are an obvious hedge against peace, for they would gain from a reduction in mining costs, arising from lower commodity prices, and eventually, if trade recession came again to America, from the disappearance of the main objection to raising the dollar price of gold, viz., that it would cause inflation in America. Those investors who think that peace overtures are probably genuine might do worse than make moderate purchases of good-class gold mining shares such as West Rand Investment Trusts (WRITS) now around 35s., which is 10s. or so below their value based on current prices of the Trust's holdings in Blyvoor, West Driefontein, Western. Reefs, West Wits and other leading gold shares. For the more speculatively inclined Orange Free State Investment Trusts (OFSITS) at 41s. 3t1. and New Pioneers at 24s,. 3d. have much to recom- mend them. The former has large holdings in the best O.F.S. gold and uranium mines, while the latter has substantial interests in Stilfontein and in two impending Lucas Block flotations, Hartebeestfontein and Buffelsfontein, which are expected to be rich producers of gold and uranium. Both OFSITS and New Pioneers, in my view, offer good scope for appreciation inde- pendently of the peace talks.
Ford Motors' Yield
While the Ford Motor Company's total sales in 1952 rose by 19 per cent. to nearly £84 millions, the net profit (after providing more for tax, exceptional obsolescence and non-recurring back service contributions to pension funds) is 24 per cent. lower at £3,029,526. Provision for E.P.L. alone takes £1,100,000. The figures are quite as good as could be expected, but the Ordinary units fell sharply on the results because the dividend is unchanged at 15 per cent. Hopes of a higher payment, no doubt, were stimulated by the proposal to issue a 100 per book, however, was heavy, and the chairman described himself as quite optimistic. There seems good reason to suppose, therefore, that the results for 1952, due in a few weeks time, will again give cause for satisfaction. Even if earnings are not as high as in 1951— when they were equal to 240 per cent. on the present Ordinary capital—they should warrant the maintenance of the 25 per cent. dividend on the enlarged capital. On that basis the yield at the current price would be 61 per cent. The net asset value is about 4s. 9d. a share; and the present price of the shares is fully represented by net liquid assets. In the light of this cover, a remark- able earnings record, and, so far as I can see, a favourable future, the shares seem attractive.
Tobacco Securities Deferred
The latest results of the British-American Tobacco Company, which I dealt with last week, serve as a reminder of the possibilities of the £1 Deferred units of Tobacco Securities Trust, which in my view are good value for money at the present level of 26s. 9d. Here the yield on the dividend of just over 12f per cent. is as much as 91 per cent. Tobacco Securities Trust is a holding company, depending for its revenue on the income from a portfolio of nearly 'L10 million of investments, of which about 90 per cent. are in the tobacco industry. Although the holding of British-American Tobacco Ordinary stock forms only a small part of the total portfolio it seems reasonable to assume that the satisfactory results just disclosed provide a fairly good guide to the fortunes of the Trust company. The Trust company's Deferred £1 stock units were quoted as high as 40s. in 1951 and touched 77s. 6d. in 1947. While the earnings cover for the dividend is somewhat thin, these units seem unduly depressed at the present level.
A Coronation Share
Among the companies which should benefit from the Coronation I like Thomas C. Wild because of its excellent record. This Longton, Stoke-on-Trent, concern makes the best class of medium quality decorated and plain china ware for domestic and household use and for hotels and caterers, and the Products are marketed under the names "Royal Albert Bone China," "Chapman's Royal Standard China," "Roslyn China" and "Queen Anne China." A considerable programme of capital expenditure has been carried out since the war, and this is now virtually complete. The report for 1952, issued recently, shows record profits, and says that export trade continues to increase, with no sign of any abatement in the demand for the company's products. At home the public has taken full advantage of the release of decorated ware for the home market.. In recent months the company has been producing Coronation mugs, beakers, ash trays, and other souvenirs, for which demand has been heavy, and the.; are orders.for all that the company can make for delivery before the Coronation. Over the past six years earnings on the Is. Ordinary shares have ranged between 81 per cent. and 92.3 per cent., and a dividend of 50 per cent. has been paid each year. The shares are now around 6s. to yield just over 81 per cent. With a remarkably steady post-war record and the prospect of a good year ahead, these shares have much to commend them.
cent. Ordinary share bonus last January, notwithstanding the directors' warning that the capitalisation of reserves carried no implication as to the future rate of dividend. The 15 per cent. dividend requires £708,750 and is covered laver four times by last year's net profit. The current price of 57s. 9d. for the Ordinary units includes just over ls. 6d. net dividend. On this basis the price ex dividend and bonus should be about 28s. lid., at which the yield, assuming half the present rate of dividend on the doubled capital, would be £5 7s. Od. per cent. This is a low return on a motor-manufacturing stock, but it is justified by Ford's admirable record and exceedingly strong finances and by the improved sales in the current year compared with the early months of 1952. The acquisition of control of Briggs Motor Bodies, which makes bodies for Ford, as well as other car manufacturers, will make the Ford Company a completely integrated producer of motor" vehicles from the iron ore td the finished product.
British Oxygen Progress With the main outlet for its products in various branches of the engineering industry British Oxygen again reports record results. ' Trading profits of the group have risen by nearly £1 million to a new peak of £5,600,000, a figure to which almost all units at home and overseas have contributed. The directors' preliminary statement speaks of a sustained growth in sales and of the benefits derived from new developments. When one remem- bers that the substantial amount of new money recently raised has yet to become fully remunerative, it seems safe to hope for the maintenance of earnings at least around the present level. The board's confidence in the outlook is clearly reflected in the decision to bring the Ordinary dividend rate up to 15 per cent., which compares with the equivalent of 131 per cent. on the smaller capital ranking in the preceding year. The new rate is covered by a substantial margin, and in the light of the company's strong finances and progressive management I think one is justified in according British Oxygen £1 Ordinary units high investment status in the equity field. Quoted around 55s. they yield just under 51 per cent, on the 15 per cent. dividend. They are a good industrial holding.
Sanbra's High Earnings
Investors who are more interested in high earnings than in immediate dividend yields might consider a purchase of Sanbra ls. Ordinary shares around 3s. 9d. Earnings on the Ordinary capital over the five years 1947-51 inclusive averaged 214 per cent. per annum. For 1951; 327 per cent. was earned, and .a dividend of 25 per cent, was paid. Last May the interim dividend in respect of 1952 was maintained at 71 per cent., and since then a capital bonus of one new share for every three held has been distributed. The company's products in- clude water, gas and sanitary fittings, couplings and non-ferrous castings. In his review issued last June the chairman said that the trading results to date were extremely satisfactory, with output higher, but he thought that prices would fall and that profits might be lower than in 1951. The order
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