FINANCE AND INVESTMENT By _CUSTOS IT is now a case
of the long and the short of it in the stock markets. From the long-term investment standpoint many securities are looking cheap. In this category I will include medium-dated gilt-edged and deben- ture stocks standing well below par, many leading industrial equities, such as Imperial Chemicals and Imperial Tobacco, and several oil shares such as Shells, Anglo- Iranian and Burmah. All these securities may not have reached bottom, but I feel that they are sufficiently deflated to justify an investment on the long view. Taking the shorter view I am not yet convinced that we have seen the worst in markets, so that I ani not advising a policy of full investment or buying for early capital appreciation. But I think the time has passed for selling sound investments in a hurry.
Unilever Group Outlook There is light and shade in the full report and accounts for 1951 of the giant Unilever group. Larger volume and higher prices were reflected in a fresh rise in turnover from £989 million to a new peak of £1,205 million. Trading profits also established a record at £53,900,000, against £52,200,000. Those are striking indications of another year's progress. What is less encouraging in the report is the directors' frank statement that during the last quarter of 1951 condi- tions of a sellers' market gave place over a wide front to those of a buyers' market.
I think it is unlikely, that we shall see any new financing operation by the Unilever group this year. On the other hand, provi- sion may well have to be made for some writing down. Shareholders will note, how- ever, that the stock reserves of the group, on which tax has already been paid, had been built up by December 31st to the formidable figure of £13,689,849—a useful buffer against price falls. Unilever £1 Ord- inary units -have slipped back recently by several shillings to 40s. 6d., at which the yield on the 131 per cent. dividend is well over 61 per cent. Although I do not sug- gest buying for early capital appreciation, I regard this equity as attractively priced for long-term investment Anglo-Iranian Problems There is nothing in the full report of the Anglo-Iranian Oil Company to alter my view that the £1 Ordinary units at £5 IV, to yield 51 per cent, on the 30 per cent, divi- dend, are a sound investment holding. The balance-sheet discloses a financial position of immense strength and it is clear from Sir William Fraser's review that the steep increase in output in Kuwait has already gone far towards making good the loss of crude oil supplies from Persia. It would be wrong, however, to assume that the company has completely overcome the adjustment problems which have followed the loss of Abadan. It will still be necessary this year, as it was in the second half of 1951, to supplement supplies by purchases of oil from outside sources and by hiring refinery capacity. Once again, therefore, earnings will be effected by these exceptional outlays, although I see no reason to fear that the 30 per cent. dividend, which was covered about three times over by last year's profits, should not be maintained. Burma!) Oil Bonus There is no lack of good news in these days for investors in the oil industry. Follow- ing the sharp increases in earnings announced by " Shell " and Canadian Eagle the Burmah Oil Company, which has large investments in " Shell " and Anglo-Iranian Ordinary stock, now reports an increase in its group • profit for 1951 from £2,891,458 to £3,360,991. This is after charging £6,240,705, against £5,999,348, for U.K. and overseas taxation. While the income from the substantial investments in " Shell." and Anglo-Iranian must have been well maintained last year the increase in profits also points to satisfac-• tory results from the group's marketing operations in India. Fears that this impor- tant branch of the company's activities might be hit by the loss of oil supplies from Abadan have thus proved groundless. Presumably, Burmah built up substantial stocks in the early months of last year and has subsequently been able to draw its supplies on reasonably satisfactory terms from Kuwait and other sources. Few people can reasonably have expected, after the stepping up of the Ordinary distribution from 15 per cent. to 21 per cent. a year ago, that there would be a further increase for 1951. This rate is, in fact, maintained, and the transfer to general reserve is raised from £1,203,332 to £1,650,000. What is still more encouraging is the board's decision to capitalise £6,868,257 of the company's very large reserves to make a one-for-two free share bonus distribution. This will raise the issued capital _to a figure more in line with the real resources employed. Following the profit and bonus announcement Burmah £1 Ordinary units rose to 67s. 6d., but such is the state of the market that they have already fallen back to 61s. 3d., offering a yield of well over 61 per cent. In relation to " Shell," which are giving almost the same yield, Burmahs, with their Middle East risk, look adequately valued, but the assets position is immensely strong. They should prove good value for money at today's price.
Home and Colonial Yield Among the latest crop of new issues of Ordinary shares as " rights " is the offer by the Home and Colonial Stores of new 4s. Ordinary shares at 5s. each, in the propor- tion of one new share for every two held. As so often happens when a new issue is announced in depressed market conditions, Home and Colonial 4s. Ordinaries have fallen back quite sharply. The price has been marked down from 5s. 9d. to 5s., the issue price, with the result that the " rights " can be bought on the Stock Exchange for the trifling sum of Id. a share. This means that a buyer can acquire the new shares at 5s. Old. free of stamp duty, which seems to me to be an attractive basis on which to acquire the equity of a well managed group. Home and Colonial's interests extend beyond the retail trade to manufacturing and overseas operations. The business is thus broad-based and less liable to fluctuation than a purely retail concern. At a fraction over 5s. the new 4s. Ordinaries are priced to give the generous yield of 91 per cent. on the 12 per cent, dividend rate now in force. While the directors refrain from making any forecast of the results for the current year they point out that if trading profits are reasonably well maintained around the 1951 level the payment of a 12 per cent. dividend on the increased Ordinary capital would leave a useful margin for teserves.
Boots Drug Profits Provision for stock losses is now becoming a recurrent theme in the preliminary announcements of industrial companies and is likely to become even more important in the coming months. It plays a part, although unfortunately the precise amount is not stated, in the latest results of Boots Pure Drug Company, the manufacturing and retail chemists. - For the year to March 31st group trading profits, struck before charging United Kingdom taxation but after making special provision for stock losses, were slightly highei. at £2,610,785, against £2,582,966. U.K. taxation has called for £1,531,009, against £1,361,199. Net profit of the parent company, after all charges, is down from £845,375 to £748,119. These are somewhat disappOinting figures, al/hough they enable the directors to maintain the dividend at 20 per cent., which is the equivalent of the 40 per cent. rate in force before the 100 per cent. capital bonus. The final payment is also payable ..on the new • Ordinary shares issued in February of this- year at 16s. each. At the current level of 18s. 9d. Boots 5s. Ordinary shares offer a yield of just under 51 per cent. In view of the prospective further contraction of public spending I think these "-glares are fully valued for the time being.
Primitive Position Well over a year has passed since I first outlined the speculative attractions of the £1 shares of Primitiva Holdings. The price was then round 10s., and, such has been the dis- appointing course of events that the shares are now down to 6s. It is not that the company has parted with any of its sub- stantial liquid resources in London. My calculations showed on the basis of the latest balance-sheets of the Holding Company and of the Primitiva Gas Company the liquid assets here still amount to the equivalent of 12s. a share. Selling by dis- appointed holders has been based on fears aroused by the judgements given against the Gas Company in the Argentine Courts, especially in relation to alleged. excess profits, and by the absence of any indication of any serious intention on the part of the Argentine Government to reach a fair basis of valuation of the expropriated Gas Company and to reach a reasonable settle- ment. Mr. William M. Codrington, the Primitiva chairman, has done well this year to express forthright views on Argentina's treatment of the company. He makes it plain that seven years after the take-over, in spite of strong support from the British Foreign Office and from a succession of British ambassadors in Buenos Aires—to say nothing of promises made by the Argentine Government—there is nothing to report " except an unsatisfying tale of costly litigation." With the discussions on trade and financial relations with Argentina close ahead it is clearly the duty of the new Government here to bring it home to Argentina in the strongest terms, that her credit must suffer if nothing is done to restore her reputation for fair dealing. Meanwhile I think it would be foolish, to part with the shares at today's very depressed price.
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