4 AUGUST 1950, Page 30

FINANCE AND INVESTMENT

By CUSTOS

To suggest that stock markets are settling down after the violent shock of the Korean news would perhaps be an exaggeration, but they are certainly steadier than a fortnight ago. Insurance com- panies and similar institutional investors are still on the feed in the fixed-interest security group and the general body of investors, although not yet showing much eagerness to buy, is equally reluctant to sell. As I hinted last week, the technical position on the Stock Exchange is now so strong that it will require really grim news, such as the evacuation of Korea, to precipitate a further fall. By the same token only a breath of genuinely good news would touch off a sharp rally. Commodity shares, iron and steel shares, and some of the shipping and textile issues offering good yields, look worth-while purchases for those with patience and good nerves.

Silver Line Affairs

As a sturdy advocate of a purchase of the fl Preference shares of Silver Line, I must express complete satisfaction with the proposals now outlined by Mr. Henry Barraclough in his statement accompanying the 1949 report and accounts. Readers will recall that about a month ago shareholders were advised not to part with their holdings in view of "pending developments." So far as the Preference shareholders are concerned, the developments referred to take the form of a repayment plan. In the near future a scheme will be submitted, under which the Preference shareholders will be offered an option either to take repayment in cash at 21s. a share, plus arrears of dividend, or 16s. in cash and arrears of dividend, plus one-half an Ordinary 10s. share. These repayment proposals confirm the forecasts which I have made on several occasions in these notes, that the new .policy implemented by Mr. Barraclough of reducing the fleet to more suitable proportions would resylt in the elimination of the Preference capital. The £1 Preference shares, which have been moving up over the past 12 months from around 14s. to the current level of 21s. 6d., have proved a worth-while proposition. I still see no reason to sell, since the arrears will amount by the end of the year, which seems the likely date of repayment, to is. 3d. a share net. In other words, holders who see things through may expect to receive a total of 22s. 3d. There is no point, therefore, in selling and paying broker's commission of 3d. a share aroundloday's level of 21s. 6d.

The Ordinary Share Option

So far, I have assumed that holders will wish to avail themselves of repayment in full in cash, rather than exercise the alternative of taking 16s. in cash, plus the dividend arrears, which together amount to 17s. 3d., and the balance in the shape of one-half a los. Ordinary share. At the moment the 10s. Ordinaries stand in the market around 10s. 6d., so that one-half a share is worth 5s. 3d. The trouble about this option is that it will have to be exercised when the scheme is submitted, say sometime in September, whereas the actual allocation of the shares may not take place for another two or three months. That would mean that a Preference share- holder who elected to acquire a stake in Silver Line equity would run the risk of seeing his Ordinary share allocation worth less by the time that he received it. Unfortunately, the value of the Ordi. nary shares of this company is difficult to assess. Although last year the company succeeded in increasing its operating profit from £18,905 to £85,987, there was still a net loss, after depreciation, of £32,164, as compared with a loss for 1948 of 1119,764. As to the current year, the chairman issues a frank warning that trading results to date are far from encouraging, which seems to suggest that the chances of an Ordinary dividend for 1950 are not bright On a longer view, prospects are more promising. After the Preference repayment plan has been carried through the company will still own a fleet of at least six vessels, which should enable reasonable profits to be made, and will still be in a strong liquid position. Recently orders have been placed for two motor tankers of 16,500 tons each for delivery in December, 1951, and November, 1952; and the chairman discloses that both these vessels have been time-chartered for five years to a major British oil com- pany. Freight market conditions have recently improved and should, of course, strengthen further in the new conditions df rearmament. I would not, therefore, dissuade Preference share- holders who do not mind shouldering some risk from taking up the Ordinary share option.

(Continued on page 163),

!NANCE AND INVESTMENT-(Continued from page 162) White Pass and Yukon In the recent setback in markets the two Debenture stocks of the hite Pass and Yukon Railway, whose merits I outlined here earlier is year, have fallen back a few points. The 5 per cent. Cons°h- ated Mortgage stock now stands around 178, against 184, and the per cent. Income Debenture stock is quoted around 70, against 75. think it is significant, however, that such stock as has come on fier has been fairly readily absorbed. Arrangements are still in nd for the reorganising of this company's capital structure and r a refinancing plan which will replenish working capital. Both e Debenture stocks are due for redemption at par at the end of e year and there seems to be little doubt that the Consolidated ortgage stock, which now carries interest arrears amounting to 3 per cent. gross, will be repaid at the due date. Although the arrears amount to only about 70 per cent., the stock will have special attraction for non-tax-paying institutions who may well willing to bid prices between 190 and 200 as soon as a repayment an is announced. There have been various suggestions for deal- g with the Income Debenture stock, but it is now thought probable at this issue, like the Mortgage Debenture, will also be paid up at r rather than receive a partial cash payment, together with an lotment of new debenture stock and Ordinary shares. My advice holders of both issues is therefore to see things through, since ere is still scope for a substantial improvement between now and e end of the year. In view of the strategic situation of the line e company seems likely to benefit, rather than suffer, as a resielt recent international developments.

General Electric Recovery Shareholders in the General Electric Company, some of whom ay have feared that the end of the sellers' market in most of the imp's products might result in lower profits, will be relieved by e figures disclosed in the latest accounts. So far from having len. trading profits for the year to March 31, 1950, have recovered arply from £4,996,554 to £6,021,980. The G.E.C. chairman, Harry Railing, explains these improved results as due partly to

• completion of remunerative contracts taken in previous years d partly to a higher volume of turnover at a slightly lower rate profit. He adds that there has been a definite falling off in orders some products, notably those connected with the building ustry. On the export side the group achieved a new record, with ores considerably in excess of the target fixed by the Government. companying the excellent earnings performance is an improve- nt in the cash position. Bank overdraft, which a year ago stood nearly £7,500,000, has been paid off, thanks to the issue of million of 34- per cent, loan stock, and cash has risen from just der £250,000 to nearly £3,500,000. The G.E.C. provides one of rare examplete in these days of a company which has expanded turnover without an increase in stocks and work in progress. ders of the Ordinary shares are to get once again a 174- per t. payment, made up of 10 per cent. dividend and 71 per cent. h bonus, which absorbs a net amount of only £404,093. This ms an ultra-conservative distribution of a net profit, after tax, over £1,700,000, of which 1500,000 goes to reserve, £100,000 is nsferred to reserve against future stock depreciation, and another 40,000 is allocated to reserve for increased cost of plant replace- ra. The Ordinary £1 shares at 84s. are yielding just under per cent. The shares look fairly valued.

A Cheap Textile Share

Among the low-priced shares which now seem to have come wn to levels which make full allowance for the long-term risks the cotton, industry are the is. Ordinary shares of John Barnes d Sons. The market quotation was up to 2s. 44-d. earlier this r and over 4s. in 1946. It is now only 2s., at which the yield on 17} per cent, dividend which has been. forthcoming in each of Past five years is 81 per cent. The strength of the position is the 171 per cent, dividend is now covered about six times by ailable net earnings, so that it would require a very sharp setback trading conditions to jeopardise the current rate of distribution. IS company, which manufactures various types of cotton cloth, • 0 has the merit of a strong financial position. Against its issued ital of £150,000 it has a contingencies reserve of £70,000, a future reserve of £72,000 and carries forward the substantial sum of 7545- Cash at March 31, 1950, had risen from £94,127 to 1.310, a clear indication that there is no strain on liquid resources. It shares should now pay well to put away for ineome and for an Pim cment in capital value.