FINANCE AND INVESTMENT
WALL STREET has done its best, in face of some fairly stiff obstacles, to preserve the new atmosphere of hopefulness in markets, but London is not finding it easy to follow Wall Street's lead. The real benefits of an American business recovery, as distinct from the immediate effects on sentiment of anticipations of recovery, are still some way off and in the meantime investors here are becoming more conscious of the possible implications of rearmament. Industrial profits in many branches of iron and steel, in aircraft, engineering, coal, &c., will probably increase, but what has the Chancellor up his sleeve in the way of taxation ? And, if there is to be priority and, in greater or lesser degree, a form of industrial mobilisation, will there not be increased Government control ? If there is control, may it not gradually extend to investment ?
Same of these may be long-term possibilities rather than near-term probabilities, but they cannot be left out of the investr's reckoning. My own feeling is that if there is any move in the direction of industrial regimentation in this country it will be very gradual. Mr. Chamberlain is obviously opposed to it and we are fortunate, in our abundance of resources, in being able to pick our way care- fully. The real basis for investment, however, must remain the hope that some progress towards European appeasement lies ahead such as will enable us to escape the dire effects of prolonged rearmament on an intensified scale. This is not inconsistent with a feeling that for the time being I would rather hold shares whose prospects are related to the defence programme than equities which represent a stake in the recovery of world trade.
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WOOLWORTH ISSUE SUCCESS
Even the City sceptics must take off their hats to Mr. Philip Hill. A few weeks ago he revealed himself, in the Beechams-Maclean and the Beechams-Eno deals as Britain's Big Medicine Man. Now he has flouted the pessimists by carrying through a £6,300,000 deal in Woolworth shares with resounding success. Market conditions have been anything but favourable, but there is no gainsaying the facts. Lists closed at 9.1 a.m., total applications £32,000,000 from over 35,000 separate applications (not applicants !), these are the kind of astronomical figures that issuing houses dream of but seldom achieve. What is Mr. Hill's secret ? I think it can be summed up fairly simply. Good value, psycho- logical insight, and good salesmanship. No secret, in fact, at all, but just sound business tactics. At the moment the shares were offered investors could buy Woolworth shares on the Stock Exchange at 58s. 3d., admittedly not free of brokerage and stamp and fee, but there were more sellers than buyers ; yet 35,000 applications were forthcoming for the new shares at 58s. Such is mass psychology.
One result of the Woolworth issue has been a modest speculative demand for the 5s. ordinary shares of Philip Hill and Partners, the successful issuing house. The price has risen from 13s. 9d. to 15s., but still does less than justice to the position. On the basis of the 25 per cent. dividend rate, which may easily be improved upon this year, the yield is over 8 per cent. The company is an investment trust, finance and issuing house combined, with alert management and a large portfolio. As a speculative investment the shares look promising enough.
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SHOULD TRANSPORT " G " BE GUARANTEED ?
All has been quiet on the City front since the issue of the London Transport Board accounts, but the silence can almost be felt. The report makes it quite plain that Lord Ashfield and Mr. Pick have put the public interest first— and some would say last as well—and are prepared to take any consequences which the " C " stockholders may try to force upon them. So far, the " C " stockholders have held their hands, not because the accounts have thrown any new light on the dividend outlook, but merely because it is assumed that there will be some decision about fares in the near future. Unless the Board's plans in the matter of adjusting fares are judged adequate to meet the revenue situation, I think we may anticipate a really forceful campaiirri for some form of Government guarantee of the " C " dividend.
Many of the large holders, I gather, would feel happier if the Government saw fit to guarantee even a 4 or 41 per cent. rate on their stock so as to end once and for all the present uncertain position in which the dividend is 4 per cent. one year and may or may not be 51 per cent. the next. With this view I am in sympathy, since I am convinced that the Board, as at present constituted, is going to interpret its obligations to the workers and to the travelling public very strictly and, if they seem to conflict with the rights of the " C " stockholders, to throw itself on the mercy of the Court. One obvious advantage of a guaranteed " C " dividend of, say, 4 per cent., would be that it would cost the Board about £380,000 a year less than the standard 51 per cent., which sum would be available for improving the service to the public. The proposed guarantee would therefore have a strong justification from the consumer's point of view apart from its merit of helping to compensate " C " stockholders for what has so far been a very raw deal.
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Venturers' Corner
In this motoring age most of us are familiar with the " House of Henlys," the dealers, concessionaires and distri- butors. At a time when new registrations are falling one would not expect a firm of this kind to avoid a fairly sharp contraction in earnings, and the latest accounts of Henlys, Limited, for the year ended August 31st, confirm such fears. Net profit has fallen from £56,719 to £38,641, the ordinary dividend is reduced from 5o to 40 per cent., but £26,664 is carried forward, against £20,085 brought in. The participating 15s. preference shares, which are entitled to a cumulative 7! per cent., plus a further non-cumulative 5 per cent. out of half the profits remaining after the ordinaries have had 71 per cent., receive their full 121 per cent., as they have done consistently for many years. That the market ranks these shares as a very speculative holding is evident, however, from the current quotation of 13s. 9d. at which the yield, on the full 121 per cent. rate, is over 131 per cent.
Now everybody recognises that dealing in motor-cars is a tricky business, subject not merely to the ups and downs of public purchasing power, but to cut-throat competition and, unless great care is exercised, to periodical heavy losses on stocks. These considerations alone justify a cautious valuation of Henlys' shares. I still feel, however, that on the company's past record—it has maintained a good average level of profits and a strong financial position—and in view of the rather more promising outlook, the participating preferences are undervalued at today's low price. A brisk recovery in the company's business may be some way off yet, but last year's profits were adversely affected by the inability of S.S. Cars, one of the principal agencies, to give delivery owing to delays in obtaining essential parts. It appears that deliveries are now up to schedule and that the cars are in good demand. Given, therefore, a modest improvement in public confidence between now and the spring buying season, the company should be well placed to get its share of the business. CUSTOS.
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