FINANCE AND INVESTMENT
By CUSTOS FOR some weeks the meagre flow of Stock market business has reminded me of the anonymous verse on the illness of King Edward VII:— Along the wire th' electric message came He is not better, he is much the same.
The tone, however, is cheerful enough, and the volume of business is showing some signs of reviving at last. Industrials have continued to improve, and oils came into prominence in mid-week. After a brief hesitancy, gilt-edged picked up on the offer of conversion to holders of 2i per cent. National War Bonds, 1952-4. Although the conversion may not have any appreciable direct effect on the market, it does at any rate remove much of the uncertainty about the Government's conversion plans, which has had a restraining influence. To that extent the gilt-edged market may benefit for a time.
U.S. Prospects For the longer term America still holds the Market key. American business indices remain favourable, but memories of the 1930-32 depression are still vivid. One American bank in its monthly bulletin has recalled some of the prophecies of the late lamented Twenties. Among these is an extract from the November, 1929, bulletin of a New York bank: "There is no evidence that a general slump is imminent." In May, 1930, a leading advisory service made this forecast: "Business will turn upward this month or next, recover vigorously in the third quarter, and end the year substantially above normal." This American bank suggests that no help can be expected from profes- sional "propheteers." They are, it says, just as given to wistful thinking as the rest of us. Healthy scepticism of this kind, by inducing caution, should at least help to avert the speculative excessives which led to the Wall 'Street crash and the great depression.
Courtaulds' Strength I find no reason in the full accounts of Courtlauds for revising the opinion I ex- pressed on this company's ordinary shares on the strength of the preliminary figures. Rather the reverse. Sir John Hanbury- Williams, the chairman, takes a cautiously hopeful view of the trading outlook, and the balance-sheet position is impressively strong That the rayon trade is well over the worst has become apparent from the trend of output. Although the Courtaulds' chairman gives the warning that part of the recent improvement may reflect re-stocking and "over-buying," he seems well satisfied with the course' of events. Business in rayon staple, he says, is at peak levels, and he hopes that- the current rate of deliveries will be maintained during the coming year. Although the export market, particularly for piece goods, is not recovering as rapidly as had been hoped, the general picture is of a resumption of an upward trend in a "growth" situation.
Bonus Possibilities What of Courtaulds' finances? They are as strong as ever. Flanking a reduction in stocks from £22,232,000 to £17,552,000— these are the group figures—cash has risen by £1,000,000 to £7,500,000. Total reserves, revenue and capital, appear at over £65,000,000, against the issued ordinary capital of £24,000,000. No wonder the chairman goes so far as to say that the real capital employed is now "far in excess" of the issued stock. He goes on to point out that but for the recession in the rayon industry the Board would have taken steps to correct this anomaly. Such a step, which would involve 'a substantial distribution of "bonus" shares, is, it seems, postponed, but clearly it will be taken as soon as the groiip's earning power can be gauged. Since I discussed. Courtaulds' £1 ordinary units on June 19th, they have moved up from 39s. 6d. to 40s. 9d. On the 111 per cent. dividend they offer a return of 5f per cent. In my view they are a good industrial investment.
The N.P. Does it Again I do not know whether the bank parlours of the City are annoyed by the action of the National Provincial Bank in putting up the interim diVidend, as the lively City Editor of the Daily Express suggests; but the N.P. shareholders will be grateful, and share- holders .,in other banks will, like Oliver Twist, ask for more. Last year the N.P. was the only one of the Big Five to pay more-16 per cent. against' 15 per cent.— and it is now paying an interim of 81 per cent., against 71 per cent. a year ago.. This points to a total payment of at least 17 per cent. for 1953. National Provincial "B" shares have risen 4s. 6d to 73s. since the announcement, and at this price they would yield £4 13s. Od. per cent. on a 17 per cent. basis. This is not too generous on a £5 share (£1 paid) with 13s. 4d. callable and a reserve liability of £3 6s. 8d. a share, but I do not think the shares are overvalued. There is a strong impression that the banks are not doing too badly, despite higher costs, and that dividends will be raised eventually.
Value for Money Some attractive equities suffer occasionally from restricted marketability. A case in point is Ashton Brothers & Co. Ordinary, mentioned here in February at 37s. 6d. and now quoted around 41s. 3d. The main market for the shares is in Manchester— though they can be bought in London— and as they are tightly held, a buyer may have to wait for shares to come on offer. Ashton Bros., a vertical concern, has just declared an interim dividend of 5 per cent., against 21 per cent. a year ago, and this suggests confidence in the outlook. A total distribution of 20 per cent. was made for 1952 out of earnings of 30.5 per cent. For the four preceding years, however, earnings on the Ordinary averaged 192 per cent. Last year's drop in profits was largely due to the textile slump during the first nine months of the year and to depreciation of stocks caused by sharp falls in raw material prices. Given reasonable stability of prices, I look for an improvement in earnings this year. The doubling of the interim may arouse hopes of a larger total payment, but even on last year's 20 per cent. basis, the yield at 41s. 3d. is almost 91 per cent. The (Continued on next page)
FINANCE AND INVESTMENT—continued
shares have a net asset value of 122s., of which no less than 80s. is in net liquid assets. If any financier should be thinking of bidding for control of Ashton Bros., he would have to pay at least £6 a share.
Good Preference Yields
The need of income is the paramount consideration for many investors. To these I commend the 6 per cent. Preference £1 shares of Blackwood, Hodge (Holdings) which were recently introduced to the market and are now obtainable around 20s. 3d. At this price they show the generous yield of £5 18s. 6d. per cent. Blackwood Hodge and its subsidiaries carry on a business for distributing, servicing, hiring and manufacturing earth-moving equipment. Inter alla, they distribute the products of Euclid Road Machinery Co. and Marion Power Shovel Co., and have arranged for the manufacture of Distington Engineering (a subsidiary of United Steel) of Carlisle heavy duty road grader, for sale by the Blackwood Hodge , group throughout the world. While profits have fluctuated, the Preference dividend is covered sixteen times by average profit for the past five years, the assetsc over being four-and-a-half times. The business is sound, with apparently favourable prospects, and the Preference shares should stand ls. or so higher when their merits become more widely known. Among other recent newcomers to the markets, De Havilland 51 per cent. Preference are a sound investment around 20s. 6d. to yield £5 2s. Od. per cent. On the basis of last year's earnings the Preference dividend is covered over eleven times.
Grayson Rollo's 100 per cent. Share Bonus It is about three years since I suggested that Grayson Rollo and Clover Docks 2s. 6d. Ordinary shares should prove to be a rewarding holding for those who like high earnings and solid asset value. Anyone who bought 1,000 then at an all-in cost of £275 and has since resisted the temptation to sell, should now hold 1,603 shares worth £992 at the current price of 12s. 41d. At this price the yield is only 3 per cent. on the 1951-52 dividend. But something better is obviously in store for the year to March 31st, 1953, for the directors have already declared an interim dividend of 15 per cent. —equal to the total payment for the previous year—and have announced a one-for-one share bonus. The interim decision points to the possibility of a total distribution of at least 30 per cent. on the present capital. This is well within the bounds of possibility since 103 per cent. was earned on the Ordinary capital in 1951-52. On a 30 per cent. basis the yield would be just over 6 per cent., while the return on a 35 per cent. payment would exceed 7 per cent: Should the shares be retained? A lot of the gilt has clearly gone off the ginger- bread since they were first recommended, but the earnings are good, and the real value of the assets exceeds the market valuation of the capital. Land, docks, buildings, plant, etc., stood in the last balance-sheet at about £145,000; but a valuation on a going concern basis, made in January, 1952, by a firm of surveyors and valuers, puts the value at £1,590,584. On this basis the break-up value of the Ordinary shares would be 23s. 9d. I think they are still worth buying.
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