FINANCE AND INVESTMENT By CUSTOS As the City suspected, Mr.
Butler has not delayed long, faced by a crumbling wicket, in going in to bat in the gilt-edged market. His much-heralded funding operation has now taken shape and comprises conversion offers to the holders of the £450 millions of If per cent. Funding stock, 1953, and Of the £522 millions of 21 per cent. War Bonds, 1951-53. At first sight the terms look reasonably attractive and it is probable that the response will see the Chancellor through his immediate funding problems. But the fight for a stable financial economy is not yet over, as the half-yearly revenue figures clearly show. Markets will do well to hold their ground.
Japanese Bond Terms At long last the British negotiators in New York have succeeded in coming to terms with the Japanese on the sterling loans out- standing in this market. In face of quite inexplicable opposition from the American representatives on the question of currency clauses Sir Thomas Frazer has pulled off a satisfactory deal. The currency clauses which attach to several of the loans will be honoured, Japan is to carry out all her contractual obligations in the matter of interest payments, and the only criticisms one can make are that in the matter of arrears of interest there is to be considerable delay and that maturity dates are also being con- siderably prolonged. All in all, the British investor gets a reasonable deal and those who have bought Japanese bonds at rising prices over the past two or three years now find their patience well rewarded. I out- lined the possibilities in this field in these notes on August 22nd and picked out Japanese 5/ per cent. 1930 Bonds at 156 and Tokyo Electric 6 per cent.'s at 168. The 1930 issue has hung fire and is still quoted around the price then ruling, but the Tokyo Electrics have jumped to 176. I think holders of both these issues should retain their bonds, since the inevitable profit- taking by short-term speculators is likely to be well absorbed by genuine investment buyers. Already the market is looking calmer after the first flurry which followed the debt settlement terms, and it will be disappointing if prices do not move on to a lower yield basis over the coming months.
Glaxo Profit Record There seems to be no end to the record- breaking career of Glaxo Laboratories, whose achievements since they became a public company only a few years ago have been quite remarkable. For the year to June 30th profits of the group, after provid- ing for all charges, including £1,775,000, against £1,749,000, for United Kingdom taxation, have risen from £1,333,000 to a new peak of £1,585,000. Appropriately on the strength of such earnings the Glaxo directors are raising the Ordinary dividend from 22f per cent. to 30 per cent., a rate which is still covered by a very large margin. The transfer to future research and develop- ment is maintained at £150,000, obsoles- cence and replacement reserve again get £250,000, another £200,000, against nil, to exchange reserve and the appropria- to general reserve is raised from 9,000 to £555,464. Following the 900 per cent. free share bonus distributed two years ago the directors now announce their intention, subject to the consent of the Capital Issues Committee being obtained, to give a one-for-one scrip bonus, involving the capitalisation of £796,350 of the com- pany's reserves. In doing so they warn shareholders that in itself the share bonus will have no effect on the future amounts to be distributed in dividends and they reinforce their warning by recording their view that the trading position is less favour- able than in the past financial year. It may happen, therefore, that results for the year to June 30th, 1953, will fall somewhat short of the peak earnings just disclosed but, even if they do, the risk of a reduction' in the dividend—allowing for the proposed doub- ling of the capital—seems quite small. Even so, the board could pursue a more liberal distribution policy without impairing the group's financial strength. Glaxo 10s. Ordinary units at 72s. 6d. are yielding only 4 per cent. on the 30 per cent. dividend rate —one of the lowest returns offered in the industrial equity market. In spite of the company's impressive balance-sheet and its record as a profit-earner, I think the shares are high enough for the time being.
John Brown Position From the recently issued report and accounts shareholders in John Brown and Co., the ship-builders and engineers, will have got a favourable impression of the group's prospects. It was confirmed by Lord Aberconway in his statement at last week's annual meeting. He emphasised that, shorn of its nationalised iron and steel interests, the group is now pursuing a two- fold development policy. It is maintaining its established businesses, such as its ship- building yards at Clydebank, at the highest pitch of efficiency through modernisation and extensions, and is launching out into new fields, such as the manufacture of the larger helicopters and internal combustion turbines for land power. The shipbuilding yard and engine works at Clydebank, it seems, are fully employed, with a substantial forward order-book covering ships of many types. The difficulty has been, and still is, to secure supplies of steel to keep pace with increasing requirements. On the balance- sheet position Lord Aberconway disclosed that of the £5,596,810 of Steel stock which the company received for its nationalised interests only £1,173,817 was still held at the balance-sheet date on March 31st. John Brown still has substantial liquid resources, which would appear to be ample for the immediate projects in hand, although much will depend on whether or not the company decides to repurchase its steel interests under the unscrambling plan. Quoted around 44s. 6d. John Brown £1 Ordinaries are priced to yield just over 61 per cent., less tax, on the 71 per cent. tax- free dividend. I still regard them as a promising industrial holding.
Harrods (B.A.) Handicaps Shareholders in British-owned enterprises in Argentina are passing through lean times. So far, there has been no encourag- ing news of the trade talks in Buenos Aires which seem, in fact, to have got bogged down almost before they have started. Meantime, a reminder of the difficulties of the remittance position comes from the board of Harrods (Buenos Aires) who, in a preliminary statement covering the year to August 31st, disclose that no substantial sterling remittances of profits have been received since May, 1951, by the company or its subsidiary. The directors add that in terms of Argentine currency trade profits for the year to August 31st were less than for the preceding year but that it is impossible at present to place a value in sterling on these earnings. In any event, by far the larger proportion of them are unremittable under current Argentine regulations. There will be no surprise, in face of these difficulties, that the directors are not paying any Ordinary dividend, which compared with 5 per cent. last year, but holders of the 4 per cent. Preference' shares again get their full rate. It is also intended to pay the full 8 per cent, for the year on the 8 per cent. Cumula- tive Preference shares, but owing to the difficulty of placing a sterling value on the current profits in Argentina this dividend will have to be provided by a transfer from reserves. This proposed transfer will require shareholders' approval at the annual meet- ing. Harrods (B.A.) 15s. Ordinaries have fallen back from 3s. 9d. to 3s. 3d. and can only be regarded, even at this level, as a long-term speculation. The £1 8 per cent. Cumulative Preference shares at 8s. are yielding 20 per cent. This high return is itself an indication of the risk involved, but in my view these Preferences are now under-valued.
A Liquidation Share Speculatively-minded investors who are not averse from waiting in the hope of a capital profit might consider the 10s. shares of Bushtick Mines, a Southern Rhodesian company which is now in the process of realising its assets. In the balance-sheet just issued, dated June 30th, 1952, the com- pany shows net liquid assets of £150,000, of which £106,000 is in hard cash. In rela- tion to the issued capital of £500,000 this represents exactly 3s. a share. It is possible, however, as the directors point out, that some allowance must be made for possible losses on disposing of stores, which appear at just under £31,000. If one deducts, say £10,000, to cover any realisations under this head below book values, the resultant £140,000 of net liquid assets is still equivalent to over 2s. 9d. a share. It seems to me that a buyer at today's market price of 2s. 10id. is therefore running very little risk. What makes the shares interesting is that, apart from its liquid assets, the company has still some plant to dispose of and is also trying to interest industrialists in its mining camp. Fixed assets appear in the balance-sheet at a net figure of.f.,473,000, which is not far short of another 10s. a share, but I am not think- ing in terms of any possibility of that amount being realised. It does seem likely, however, that the sale of the site and the remaining plant should bring in a useful addition to the net liquid assets for ultimate distribution to the shareholders. The report also discloses that the directors are explor- ing the possibility of finding a purchaser for the company's shares at a price slightly in excess of the amount likely to be distributed in a winding-up. If anything develops along these lines it would clearly have the advan- tage of speeding up the pay-out to share- holders.
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