FINANCE AND INVESTMENT
By CUSTOS IF there is anyone in Whitehall waiting with a big stick for the first signs of any rip-roaring boom in the stock markets he must so far be disappointed. While there is undoubtedly more business in Throgmorton Street than for some months past, nothing resembling a boom of the bad old type has developed. Buying is for cash, activity in many directions is hampered by scarcity of stock, profit- taking in other groups helps to keep markets fluid, and then there are the shares with uncertain or poor peace-time prospects which are nobody's friend. Altogether a reasonable performance which even the sternest enemy of Stock Exchange exuberance could not criticise. In investment policy the emphasis is still on post-war recovery possibilities, including, of course, the considerable improvement• in net earnings which many companies may expect whenever E.P.T. is substantially reduced. How much in the way of increased dividends buyers are looking for may be judged from the prices now being paid for shares on which current dividends are small or where there is no dividend at all. Some of the ordinary shares seem to me to have run ahead of what is justified at this stage. Better value for money can be had, subject to the minor disadvantage of a limited market for the shares, on preferences standing below par with accumulated arrears of dividends.
MANY DEBENTURE CONVERSIONS Subject to the close scrutiny and consequent delays of the Treasury's capital issues control, conversions of high-rated deben- tures to a more economical basis are proceeding apace. Among the arrangements now nearing completion are conversions affecting Austin Motor, Hewitt Brothers, the Grimsby brewers, and City of San Paulo Improvements and Freehold Land. The last-named is more than usually interesting from the market standpoint in that the replacement of the £393,217 of 71 per cent. debenture stock by a smaller amount of 51 per cent. stock is to be followed by a capital reorganisation scheme. Arrears on this company's £344,262 of 7 per cent. cumulative preference stock date back to March, 1931, amount- ing to 86 per cent. gross or 43 points net.
I imagine that the board will deal with these arrears by means of a funding plan so as to open the way for a resumption of dividends on the large ordinary capital, which, in turn, will probably be called on to take the brunt of the task of eliminating the debit of £289,563
on profit and loss account. At par the £roo preference stock, with 43 points net of arrears, should turn out well as a lock-up invest- ment, both the yield and capital appreciation. The 19s. ordinaries, at 5s. 9d., though more speculative, also look worth putting away.
AN UNDER-VALUED PREFERENCE
While I am not surprised that the turn of events in Italy should have been followed by buying of depressed Roumanian oil shares such as Steaua Romana and Phoenix Transport, it seems illogical that the 8 per cent. cumulative £r preferences of Phoenix Oil Products should still be standing at 15s. The dividends on these shares, guaranteed by Phoenix Transport, is being regularly paid, so that the yield is over to per cent. In pre-war days Phoenix Oil Products consistently earned its preference dividend and paid it out of its own profits. Since the outbreak of war, however, with the pro- perties of both companies in enemy hands, the dividend has been met by the guaranteeing company.
The position of these preferences, however, is very strong in that there is a sufficient amount of cash and gilt-edged securities in the guarantor's balance-sheet to cover the guaranteed dividend for at least six more years, while Phoenix Oil Products itself is main- taining a strong liquid position unimpaired. Bombing may inflict damage on the Phoenix properties, but the oil will remain and the end of the war will be accelerated. In view of the strength of the guarantee and the post-war prospect the yield of over so per cent. offered on these shares seems to me to be unduly high. A quotation nearer par than 15s. would still leave the yield on a very adequate level.
Previous page
