FINANCE AND INVESTMENT
By CUSTOS ALTHOUGH some of the steam has gone out of the stock-market rise there is nothing to suggest that the City has abandoned its new-found hopefulness. Gilt-edged, which have attracted a good deal of short-term speculation, have held most of their recent gains, and the same is broadly true of industrial equity shares. In my view the recdvery movement, provided there are no nasty jolts on the wages front, will continue on selective lines, but there is not the smallest likelihood of any runaway rise. Investors have only to study their company reports to see that in most industries increasing costs -to say nothing of heavy taxation-are now eating into profit margins. The scope for increased dividends is much less than a year ago.
Odeon Improvement The hopes of a further improvement in the fortunes of the Odeon group held out a year ago by Mr. J. Arthur Rank are amply fulfilled in the preliminary figures now issued covering the 53 weeks ended June 28th. The rise in trading profits of Odeon Theatres, the parent concern, from £5,125,230 to £6,397,278 exceeds most recent City esti- mates. It is a striking reflection of the benefits which have accrued from the cutting down of the group's film production pro- gramme and of the economies introduced on the exhibiting and distribution side. Although tax has called for £2,512,141, against £1,709,846, Odeon Theatres' net profit is sharply,higher at £834,620, against £138,227. On top of that there are " special profits " of £393,495, against £139,753, which have raised the available balance to £1,228,115. The board's decision to pay two years' dividend on the 6 per cent. Preference shares, thus bringing payments up to June 30th, 1951, is amply justified in the light of these figures, since the total net sum involved is only £173,250. It is not surprising that the board express their hope that "subject to unforeseen circumstances " it should be possible to bring the Preference dividend up to date during the current year. In the case of Gaummit-British Picture Cor- poration trading profits are shown to have been held more or less steady at £2,895,094 for the 53 weeks, against £2,852,264 for the preceding year. Nevertheless, the board shows its confidence in the outlook by rais- ing the dividend on the Ordinary shares from 5 per cent. to 71 per cent. As usual, British and Dominions Film Corporation, whose profits were somewhat lower at £331,392, against £389,114, merely pays its 51 per cent. Preference dividend but nothing on the Ordinary shares.
Stronger Finances Quite as impressive as the improvement in Odeon Theatres' earnings is the further reduction which has been effected in the group's bank indebtedness. The consoli- dated balance-sheet to be issued later this month will show a fall in bank loans of £2,437,008, which brings the total reduction in the past three years to £9,509,843. The group has also repaid loan capital during the past year amounting to close on £2 million. It appears, therefore, that bank loans, which three years ago had reached the disturbing figure of over £16 million, have now been reduced, partly by sales of
properties, etc., and partly by reduction of film stocks, to something in the neighbour- hood of £7 million. One imagines that further cutting down of bank indebtedness, which is clearly desirable, is likely to proceed at a slower pace. Meanwhile, 1 think the improvement in the group's fortunes justifies a modest upward revision- of share values. Odeon Theatres 6 per cent. £1 Preference shares, still carrying one year's arrears, look rather undervalued at 12s. 6d. yielding approximately 10 per cent. The same applies to Odeon Properties 41 per cent. £1 Prefer- ences at 8s. 6d. and to Odeon Associated 41 per cent. £1 Preferences at 7s. 9d. For
more staid investors there is the 31 per cent. First Mortgage Debenture stock of the Properties Company, giving a running yield of 51 per cent., at 65 and redeemable at par in 1982. There is also the 31 per cent. First Mortgage Debenture stock of Odeon Asso- ciated priced at 65 and finally redeemable at par in 1984.
Beecham Group Expansion
A further rise in gross income and a steep increase in costs were the outstanding features in the latest results of the Beecham Group, covering the year to March 31st. While the Group's total income from sales of its various products in home and export markets reached a new peak at £25,411,324, against £23,066,769, trading profits were down from £2,735,077 to £2,605,058. The report discloses that the cost of raw materials supplies and services went up from £14,513,771 to £16,259,446. Stockholders will be encouraged by the fresh expansion now disclosed in the Group's activities on the export side. Profit from export and overseas business amounted to £1,245,308, or not far short of one-half of the total earnings. Although this figure, owing to the rise in costs, was rather below the record established in the preceding year, it was based on a substantial' increase in sales. On the Deferred capital the dividend is again brought up to 40 per cent. and although the new shares raised early this year rank only for the final of 4 per cent. it seems a reasonable inference that the 40 per cent. rate should be comfortably maintained on the larger capital. The new money has been used to reduce bank overdrafts, which at the balance-sheet date on March 31st were shown to have risen from £1,200,000 to £2,600,000, mainly as a reflection of the growth of stocks. As for the Excess Profits Levy position, Sir Stanley Holmes, the Beecham Group chairman, points out that the tax figure in the accounts does not include any E.P.L. provision. The Group's position in relation to E.P.L. has not yet been settled, but the board has been advised that there will be no liability under this head in respect of the profits of the past year. The Deferred 2s. 6d. units are now quoted in the market around 12s. 11d., offering a yield of 81 per cent. This seems, on the whole, a fair valuation.
Triplex Glass Outlook Stockholders in the Triplex Safety Glass Company, who have just witnessed the successful launching of the new Convertible Preference issue, should be favourably impressed by the position disclosed in the full report and accounts. One significant fact now brought to light is that of last year's total profits of £342,287 only £247,515 was attributable to Triplex Safety Glass. The substantial balance was earned by various subsidiaries engaged in plastics and general engineering, all of which are under, going rapid expansion. It follows, therefore, that the fortunes of this company are now much less dependent on the ups and downs of the motor-car trade than was formerly the case. During the year to June 30th output of safety glass was maintained at a high level, reaching its peak in March. The report points out that there has subsequently been a decline, but the directors expect that demand will revive later this year when the motor industry gets the benefit of increased steel-supplies. In the consolidated balance-, sheet the effects are shown of increasing taxation, which, together with the carrying of larger stocks, has put pressure on the group's liquid resources. These have now, been replenished, however, by the new issue of Convertible Preference shares. Since the publication of the preliminary figures a month ago Triplex 10s. Ordinaries have moved up from 21s. 6d. to 23s. At this level, yielding 7 per cent. on the 15 per cent. dividend, they are still worth holding.
Rugby Cement Options
Following the issue of the 1951 accounts of the Rugby Portland Cement Company in March, I drew attention to the attractions of the 5s. Ordinary shares. Since that date this company has made its ingenious issue of £1 million of loan stock carrying options to take up Ordinary shares between No- vember 1st and December 15th of next year. These option certificates are now being dealt in on the market separately from the loan stock itself and, obtainable around 7s. 101d., look to me an attractive medium for pur- chasing Rugby Ordinaries. The present position is that the 5s. Ordinary shares are standing around 21s. 41d. so that the options, which carry the right to subscribe for new shares at 10s. 6d. on the dates specified above, look rather undervalued. Adding the 10s. 6d. the total cost of a new share via a purchase of the options is brought up to 18s. 41d. That is not strictly comparable with the 21s. 41d. which it costs to buy the existing shares in the market, in that the new shares would rank for dividend only as from January 1st, 1954. Two years' dividend, amounting together to about Is. 6d. net per share, will, therefore, be received by holders of the existing shares but not by holders of the new shares taken up under the options. On the other hand, those who buy the options do not have to put up. the 10s. 6d. subscription money for another 14 months. As to the merits of Rugby Cement Ordinaries, they appear to me a promising industrial holding. On the 20 per cent. dividend, which is so amply covered that there should be no doubt about the maintenance of the rate on the larger capital after the options have been exercised, the yield is rather less than 5 per cent., but on top of this the company regularly distributes 5 per cent. tax free each year out of capital
reserves. In the balance-sheet these reserves at £610,115 are shown to be ample to enable the directors to make an annual tax-free distribution indefinitely if they are so minded. I think, therefore, that one is entitled to regard the regular total distribu- tion as being not 20 per cent. but just under 30 per cent., less tax. On that distribution the shares are yielding just over 7 per cent.
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