COMPANY NOTES
By CUSTOS
AFTER their initial rise, marking their sense of relief that the interim Budget was not worse but better than expected, the stock markets have been quieter- and lower. At the start of the new account on Wednesday some improvement in equities was seen. As it is impossible to say at this stage whether the Chancellor's disinflation policies will or will not create a recession in the trades which are worst hit, I think it is wise for the investor to proceed, cautiously and buy only after setbacks. The possibility of labour trouble is also a depressing influence. Nor must we forget the credit squeeze, the effects of which, as Mr. Butler warned the House of Commons on Monday, will in- crease in severity in the coming months. I am not, therefore, convinced that the market has yet fully discounted the 'Butler recession.' The only part of the Budget which is creating no' uncertainty is the in- crease in the distributed profits tax. It is too small in itself to jeopardise the dividends of the 'blue chip' companies or influence dividend policy. As if to emphasise this point the Government-controlled aRITISH PETROLEUM came out with a bumper interim dividend of 5 per cent. tax five (against an equivalent 1 per cent. previously) two days after the Budget speech. This suggests a dis- tribution of at least 15 per cent. net in re- spect of the current year. This would allow a yield of 44 per cent. gross at the present price of 114s. 6d., but it may well be too conservative an estimate. If it were not for the threat of war which overhangs the Middle East at the moment British Petroleum would command a price 20s. or more above the present market.
In selecting equity shares for purchase today it would be well to avoid the building and other trades which have been marked out by Mr. Butler for retrenchment and I would also fight shy of the motor industry until the effects of higher Purchase tax on home trade can be gauged. Two industries which are outside the possible Butler reces- sion are steel and shipbuilding. To take the latter first. Investors will have noticed the revival in shipbuilding orders in British yards which began towards the end of 1954 and has gathered momentum in the first three quarters of this year. In the twelve months to September, 1955, 1,718,000 tons of new orders have been booked as against
only 458,000 tons in the preitious twelve months. In the last three months the spurt was due mainly to tanker orders placed by the large oil companies and the P and 0 group. British Petroleum has placed con- tracts for seventeen ships or 630,000 tons, which will go to swell the next quarter's returns. At the present rate of output British yards have three years' work on hand. SWAN HUNTER, which gave a 100 per cent. scrip bonus in 1954, is the leader in the ship- building share market. At 54s. 6d. the shares would yield 4.35 per cent. on an equivalent 12 per cent. dividend (five times covered), but as the interim dividend (3 per cent.) was increased, I am looking for 15 per cent. for the year and a yield of nearly 5# per cent. As a large proportion of the company's work is for oil tankers, prospects are good for at least the next two years.
The devaluation of the Argentine peso and the freeing of the exchange are of particular importance for FORESTAL LAND. Foreseeing the difficulties in Argentina this company had started a new quebracho (tanning extract) business in South Africa. Other subsidiaries are being developed in Kenya and. Rhodesia. Difficulties had been encountered and the earnings from the South African business dropped from 32 per cent. to 20 per cent. in 1954, in spite of which dividends were maintained at 12 per cent. on the capital increased by a 20 per cent. bonus in the previous year. The blocked profits from the Argentine sub- sidiary in 1954 amounted to 033,700 or 19.7 per cent. on the parent capital, and the blocked dividend payable to the parent company was £354,600 or 74 per cent. This is in addition to the 20 per cent. earned and 12 per, cent. paid by the South African business. According to the new Argentine currency decree, profits accruing to foreign capital after June, 1955, can be remitted free and profits blocked up to that date will be progressively released by quotas as circum- stances permit. So Forestal Land have four and a half years* dividends from its Argen- tine business which will now gradually be remitted. The tanning extract business is not what it was, but Forestal Land shares have been undervalued and deserved their improvement on the Argentine prospect. At 30s. 6d. they still give the very satisfactory yield of 7.8 per cent.
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