FINANCE AND INVESTMENT
By CUSTOS
HOPE deferred has so sickened the hearts of British investors in Argentine railways that recent news of important concessions in tariffs and exchange rates has scarcely evoked the response it deserves. It is now clear that Sir Montague Eddy's visit to Buenos Aires has resulted not merely in a satisfactory compromise' on the wages ques- tion, and an increase in tariffs, but in a substantial modification of the rate of exchange allowed for purchasing materials and remitting to London. For importing materials the railways will be allowed a rate of 14 pesos to the pound, against 15 previously, and for financial remittances the change is from 16.15 to 14.15 pesos. Those con- cessions are temporary, and related to the wages agreement, but it seems clear that they may well have the effect of counterbalancing higher wages and other costs, leaving the companies with the benefit of the "coming rise in tariffs. My own feeling is that the whole outlook has changed for the better, opening 'up the possibility of a substantial recovery in Argentine railway stocks. HOPE deferred has so sickened the hearts of British investors in Argentine railways that recent news of important concessions in tariffs and exchange rates has scarcely evoked the response it deserves. It is now clear that Sir Montague Eddy's visit to Buenos Aires has resulted not merely in a satisfactory compromise' on the wages ques- tion, and an increase in tariffs, but in a substantial modification of the rate of exchange allowed for purchasing materials and remitting to London. For importing materials the railways will be allowed a rate of 14 pesos to the pound, against 15 previously, and for financial remittances the change is from 16.15 to 14.15 pesos. Those con- cessions are temporary, and related to the wages agreement, but it seems clear that they may well have the effect of counterbalancing higher wages and other costs, leaving the companies with the benefit of the "coming rise in tariffs. My own feeling is that the whole outlook has changed for the better, opening 'up the possibility of a substantial recovery in Argentine railway stocks.
CEMENT INTERIMS PASSED
After the warning given by the chairman at the annual meetings held in June, followed by the recent announcement of the closing down of cement works, there should be no surprise at the decision of Associated Portland Cement Manufacturers and of British Port- land Cement not to pay any interim dividend on their Ordinary capital on account of the current year. Stockholders are told that the decline in the demand for Portland cement has been severe, and continues, and that this, together with the fact that matters affecting the trading accounts still await agreement with the Ministry of Works, has dictated a conservative distribution policy. At this time last year Associated Portland paid an interim of a+ per cent., which was followed by a final of 7+ per cent. In the case of British Portland a 5 per cent. interim was supplemented by a 12+ per cent. final. In the light of the facts now revealed it would clearly be unwise to budget on the maintenance of last year's dividend rates, and the market has acted on that assumption in lowering the quotation of Associated Portland Li Ordinary units from 63s. 6d. to 6os., and British Portland Ordinaries from 98s. 9d. to 91s. 3d. Even at the lower levels the yields in early prospect are low, and it will probably be some time before the shares make a sustained recovery, although the post-war prospects are obviously good.
HEAVY E.P.T. PAYERS-4 Among the undertakings now badly hit by Excess Profits Tax, but whose peace-time earnings prospects are good, is the Cementation Company. With its business spread over shaft-sinking, tunnelling and various forms of public contracting, this company had just begun to stage a genuine improvement in profits before the war. In the two years immediately preceding 1939 trading profits were £64,782 and £91,788. For the latter year to March 31, 1939, earnings on the Ordinary capital were just under 4o per cent., and a 15 per cent. dividend was paid. Since the war trading profits have leapt ahead, reaching £308,344 for 1942-43, and £256,195 for 1943-44. How heavy has been the burden of E.P.T. may be judged from the fact that, taking these two years together, the company's E.P.T. payment was £373,634.. Altogether the amount paid in E.P.T. must by now have substantially exceeded £400,000.
There is, therefore, in prospect an E.P.T. refund after the war of something over £40,000 net, a useful sum in relation to the issued Ordinary capital of only £122,500. Throughout the war earnings on the Ordinary shares have been held down by taxation to some- thing around the zo per cent. level, while ,the dividend has been steadily maintained at 15 per cent. Quoted around 4s., the is. Ordinaries are yielding only 31 per cent. on the current rate of distribution, but it is obvious that when the tax burden is eased the outlook for Ordinary dividends will change very substantially for the better, even if trading profits relapse to something between the pre-war and the current level. Increased drilling in South Africa should make a- substantial contribution to total demand in the post- war years, as should general ieconstruction work in this country. It is also worth noticing that the £1.24,265 of 6 per cent. First Debenture stock can be redeemed at any time after December 31, 1948, at 105.
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