Company Notes
By CUSTOS
IT will be obvious to readers'of my previous notes that I have a preference for shares of companies supplying the building trades. Mr. Harold Macmillan is constantly adding to their prosperity with new extensions of his " freedom-to-build policy. After the housing drive had been extended there came the slum clearance campaign and this week he has raised the licence-free limit for build- ing work on farms and factories from £2,000 to £25,000 and the house repairs limit from £500 to £1,000. At the same time local authorities are to be freed to grant licences automatically for houses up to 1,500 square feet and" with discretion " up to 2,500 square feet. So to my previous, list of Eastwoods, British Plaster Board, Crossley Building Products and Goodlass Wall I now add WALL PAPER MANUFAC- TURERS. This company has just reported— for the year ending June, 1953—a rise of 25 per cent. in its trading profit. Earnings amounted to 90 per cent. and the dividend was raised from 121 per cent. to 15 per cent. Before the deferred shares went ex bonus of 50 per cent, they were returning a dividend yield of £4.14 per cent. and an earnings yield of 28 per cent. But what will the directors pay on the new capital ? Last year the company, „which owns Walpamur and Sandersons, the famous wall-paper makers, made a good profit on its paint and distemper trading but complained of wide fluctuations in the demand for wall-paper and the low profit margins. This year, how- ever, it can look forward to better results. Wall-paper sales are higher and Sanderson's order book is full. Paper prices are more stable—they have risen from their low levels —so there is no reason to anticipate further stock losses. It is reasonable, I think, to expect an increase in the cash distribution,
say, to 121 per cent. on the new capital. At 45s. 6d. ex bonus the deferred shares would then return a yield of 5i per cent., which is not ,unattractive with a good earnings cover.
The dividend yields on shares of Trinidad oil producing companies range from 7.3 per cent. for TRINIDAD PETROLEUM DEVELOPMENT to 9.1 per cent. for APEX and having regard to the restricted area for reserve drilling (even if they find oil under the sea) this is generally regarded as being ,not too gener- ous. But there is one exception to the rule— TRINIDAD LEASEHOLDS, whose 5s. shares at 33s. cum bonus return about £5.8 per cent. This company is, of course, in a very differ- ent position, for it is a fully integrated oil enterprise owning tankers, refinery and marketing plant (for Regent petrol) in this country. It draws its supplies from Vene- zuela as well as Trinidad ; it has also acquired an interest in the Alberta oil-fields of Canada. Its profits for the year ending June, 1953, were slightly down, earnings amounting to 114.4 per cent. against 135 per cent., but the dividend was raised from 16.7 per cent. to 20 per cent. tax free. A 100 per cent, share bonus is being given and in view of the fact that last year's earnings were 57 per cent. on the new capital a larger distribution than 10 per cent, tax free is expected. But the price seems to discount that possibility. SHELL TRANSPORT AND TRADING, With its Oil risks much better distributed, returns a yield of 5.8 per tent. on the last dividend of 15 per cent. tax free, which was also better covered by consoli- dated earnings of 91 per cent. The interim dividend of Shell is due next month and some optimists are going for an increase. This seems to bz, unlikely, for competition in oil marketing is much more severe than it used to be and at the moment there is an excess of supply—gasoline prices have recently been cut—which has been made worse by the exceptionally mild winter in Western Europe and America. If Persia is restored to operations all the talk will be of an oil surfeit. This might turn investors away from oil shares, but it is always dangerous to forecast the earnings of an international group like Royal Dutch-Shell which may have hidden reserves beyond our dreams. The world oil combines no longer war against each other ahd I suspect they keep the prices of their refined oil products at levels which afford a handsome margin of profit for themselves, if not for their small competitors.
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