FINANCE AND INVESTMENT
By CUSTOS
IN the last few days stock markets have put up a surprising show of activity. Buyers are coming in more readily, and equities are returning to favour. Recent increases in dividends many of which I have reported in these notes, may have something to do with it. It is quite clear that some of the com- panies that have been putting to reserves sums three and four times the amount of their distributions are thinking of relaxing the purse-strings a little, and that in itself is enough to stimulate interest among the investing public. The latest gold and dollar figures have proved rather better than expected, and there has been a fair revival on Wall Street. One or two recent items of industrial news have been positively good. In particular, the motor industry has scored some notable successes—booming exports to the U.S. and Canada, Ford's $20m. tractor deal, Austin's £500,000 order for commercial vehiclps to help in the reconstruction of Korea.
Anglo-Iranian and Burmah Oil One of the big features of the Stock Exchange during the last few days has been a sharp rise in Anglo-Iranian Oil. The units, which were £51 when I reviewed the full accounts for 1952 last May, have now broken through the £7 figure and reached £7ift, a new post-Abadan high. Underlying the movement are hopes of a substantial capitalisation of reserves and a correspond,. ing increase in distribution. Something of this sort may well be in the offing, but it must be remembered that with over half the equity at present owned by H.M. Govern- ment, and a further quarter firmly in the hands of Burmah Oil, the stock is a narrow market at the best of times, and may easily slip back as fast as it has risen. The present movement may be well-founded. Certainly the outlook for the oil industry is now con- siderably brighter than it was a few months ago, and this should encourage Anglo- Iranian's directors to take a generous view of future distribution policy. All the same, perhaps a better way of staking a claim to any benefits that may be forthcoming than a direct purchase of Anglo-Iranian stock is an investment in Burmah Oil. This impres- sion is fortified by a six-page market slip that I have been reading recently. The argument is too long even to summarise here, but I should certainly not quarrel with the following conclusion :
"Thus Burmah Oil Ordinary stock seems to offer the happy mean between Anglo- Iranian with its dynamic potentialities and Shell with its wide spread of interests and consequent stability. In addition it has a fine business of its own in Burma, India and Pakistan, on whose earnings and improv- ing prospects alone the current price might well be justified."
The stock now stands at 53s., to yield 5.6 per cent. on the last dividend of 15 per cent. Brooke Bond Conundrum
Shareholders in Brooke Bond and Com- pany who have seen the price of the " B " Ordinary 5s. units come up from a low point of 41s. earlier this year to the present all- time high level of over £3 may well be un- decided whether to retain them for the sake of the 31 per cent, yield that is the maximum they can expect from the Board's latest pronouncement on dividend policy. This is the basis that emerges from the circular just issued proposing a three-for-one scrip bonus. The capital will not be altered until after this year's dividends have been approved in general meeting, and the total rate foreshadowed in the circular on the present capital is to be 40 per cent.
Now, this 40 per cent, will be inclusive of a 5 per cent. Coronation bonus paid a couple of months ago, and there is no guarantee that this will be repeated next year. How- ever, as the company has a record of Ordinary earnings that are habitually about ten times the amount distributed, it seems reasonably certain that it will in fact be consolidated with the dividend. The more tantalising conundrum is, what rate can we expect on the new capital ? If the payment were to be scaled down to 10 per cent. so as to take account of the quadrupling of the nominal equity we should be left with the nominal yield of 3i per cent. mentioned above. From that we should have to con- clude that the market is grossly wrong in its estimate of the future. In fact, the general impression is that we can count on a doub- ling of the amount that is to be distributed this year, to give a yield of 61 per cent, at today's price. The shares should prove well worth holding a little longer.
British Motor Corporation The decision of the British Motor Cor- poration, the Morris-Austin amalgamation, to acquire the capital of Fisher and Ludlow, the Birmingham motor-body making busi- ness, coming within a few months of the Ford Motor Company's absorption of Briggs Motor Bodies, indicates that the motor industry in this country is clearing the decks for action in the struggle for markets that lies ahead in the more com- petitive conditions now looming up. It should make for efficiency and to that extent improve the earning power of the big companies concerned.
At the moment the 5s. shares of British Motor are under the cloud that usually envelops the equity of a company that increases its issued capital for the purpose of a share exchange. They are also subject to the disadvantage that the market does not yet know what dividend it should use as a basis of valuation. The rate anticipated at the time of the amalgamation, adjusted for the 400 per cent. scrip bonus subse- quently declared, would be 10.4 per cent., but the market ic hoping for 12 per cent. That would seem a logical inference from the 4 per cent. interim declared last April. If 12 per cent, were forthcoming the yield at the current price of 6s. 9d. would be 8.8 per cent. Recent news items about it suggest that motor shares are in general more than a little undervalued.
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