6 NOVEMBER 1942, Page 22



THERE is no disputing the strength of the stock markets. Each week the turnover increases and many brokers and jobbers are finding some difficulty in coping with an enlarged volume of business with heavily depleted staffs. Whether all the transactions now being carried through are really necessary may be questioned, but it is not easy to see how purely speculative purchases could be singled out and curbed. As I see the matter, the Stock Exchange is open for business on a strictly cash basis, and so long as money is avail- able and seeking investment, it must be allowed to range freely over the whole field of securities. If prices get too high they bring their own corrective. Money is lost and speculative enthu- siasm is damped down. So far, I have not seen much evidence of stocks being obviously over-valued. On the other hand, the scope for recovery over a wide range of securities is still quite substantial.


It is always good to see the rights of preference shareholders upheld, and especially so when a large slice of preference capital is in speculative hands. Whereas it seemed at one time as if the second preference holders of British Celanese might fail to muster sufficient strength to secure a revision of the directors' funding scheme, the continued opposition of the Association of Investment Trusts and a committee organised by Mr. Austin E. Kavanagh has done the trick. Dr. Dreyfus has yielded on the crucial issue of the redemption provisions for the proposed Funding Certificates, and agreement now seems to be in sight In view of the E.P.T. position, which has not yet been clearly defined, it is hazardous to estimate the dividend possibilities of the ordinary shares. It seems a reasonable guess, however, that earnings after taxation will be sufficient to cover the maximum io per cent, rate on the second preferences and so per cent, on the highly-geared ordinary capital. At 28s. 9d. the preferences, which still carry the right to 8s. nominal of Funding Certificates and a half-year's dividend just declared, look worth holding. The ios. ordinaries, at 16s. 3d., are a promising speculation.


Earlier than I expected events have started to move in Whitehall Electric. When the merits of the Li preference shares were emphasised here a week ago, I was not thinking in terms of a partial repayment of capital. It is announced, however, that the Spanish interests have been sold for £475,000 and that the proceeds, together with other liquid resources, may shortly be applied in paying off part of the preference shares. My guess is that the repay- ment will be one of 5s. a share involving L65o,000, and as the investments sold have not been good income-earners in recent years, it seems likely that on the 15s. nominal which will remain the full 71 per cent, dividend will be forthcoming. In other words, the shares, quoted at 17s. last week, are now worth at least 2os.


When investors are willing to buy textile manufacturing shares to yield only 5 or 6 per cent., it seems anomalous that returns of 8 to so per cent. should be obtainable on textile warehousing companies' shares. These concerns are doing well and must con- tinue to do so after the war if, as I agree is likely, the textile industry as a whole remains active. An under-valued share in this category is Foster, Porter Li ordinary at 15s. On the 71 per cent. dividend the yield offered is so per cent., while the balance-sheet is immensely strong. At December 31st, 1941, net liquid assets alone were equivalent to as. 6d. a share, and included £294600 In cash and gilt-edged securities. This company'is among those which might well make a substantial return of capital without encroach- ing unduly on liquid resources.