FINANCE AND INVESTMENT
By CUSTOS
FOR the great majority of investors 1946 must be judged to have been a good year. It was certainly good if one applies the test of capital appreciation. With the outstanding exception of producing gold shares, practically every category of investment, from gilt-edged stocks down to the most speculative commercial and base metal shares, enjoyed a substantial rise. Mr. Dalton's cheap money drive, pursued with extraordinary vigour and determination, proved a powerful stimulus not only to gilt-edged but to security values as a whole, while industrial earnings have been helped by the benefits of re-stocking demand in a sellers' market, flanked by a gradual fall in taxation. Even the groups faced by nationalisation have stood up well. Coal shares have, in fact, been among the star turns ot the industrial market. Nor even from the income standpoint was 1946 a bad year for most investors. Lower and lower yields have, of course, hit those who for one reason or another have been prevented from venturing outside the trustee field. Dividends on equity Shares have, however, been rising quite steadily in spite of Mr. Dalton's injunction to company directors "not to chuck the money about."
What of the outlook for 1947? Were it not for the coal shortage I should say that prospects were distinctly, good. Although the cheap money drive must by now have spent its main force, it is likely to exert a continuing upward pull on capital values this year. There is still an abundance of money seeking investment, and pro- vided the fuel and other raw material shortages can be overcome the gross earnings of industry should continue at a high leveL Whether the net distributable amounts will be reduced by sonic new impost to take the place of E.P.T. will not be known until Mr. Dalton introduces his next Budget. I shall be surprised, how- ever, if he proposes anything drastic enough to prevent most com- panies paying satisfactory dividends for 1947.
CABLE AND WIRELESS PROSPECT
Early last year I wrote hopefully in these notes of the prospects of Cable and Wireless (Holding) Preference and Ordinary stocks and suggested that a purchase of equal amounts of both these issues should turn out well for capital appreciation. That view was based on an estimate, necessarily very tentative, of what the company would ultimately receive from the Government for its shareholding in Cable and Wireless Limited, the operating company of the group. Over the twelve months the Preference stock has risen by about to points to 122 while the Ordinary has put on 27 points to 129, a very fair performance. It cannot be said, however, that investors have anything much more to go on in valuing the stock now than they had then. The improvement in price merely reflects growing confidence in the prospect as the settlement of the compensation figure approaches.
It has recently been disclosed that direct negotiations between the Treasury and the Cable and Wireless directors failed to find a satis- factory basis of settlement, so that the compensation figure will have to be determined by an independent arbitration tribunal. The figure is to be reached on the basis of net maintainable revenue multiplied by so many years' purchase. One can imagine the sort of arguments which will be advanced by both sides. The Govern- ment will point to the growing competition from other forms of communication. The company will be able to make great play with the steady expansion of traffic which the combine enjoyed under the stimulus of rate reductions. Looking at Ole recent financial record one cannot but be impressed by the potentialities, _ especially now that E.P.T. has been removed. In recent years the- group has paid very large sums in E.P.T. and has still been able to cover a 4 per cent. dividend on the £30,000,000 of Ordinary stock with a fair margin to spare. For 1946 the dividend has been stepped up to 51 per cent., which certainly seems to indicate that last year's net revenue was distinctly satisfactory. My guess would be that the compensation figure for the L27,400,000 of the operating company's stock which belongs to the holding concern might well be something between L35,000,000 and L40,000,000. *Until the figure is known there is no point in making elaborate calculations of the possible value of the holding company's Preference and Ordinary stocks, the more so since the directors have not yet decided what course to adopt when the compensation stock is received. The most probable denouement is some scheme of arrangement under which a substantial slice of the capital will be repaid and Preference and Ordinary stockholders will agree to some adjustment of their existing rights. In the meantime try advice to holders of the Preference and Ordinary stock is not to sell.
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