FINANCE AND INVESTMENT INTERNATIONAL politics, nowadays the stock markets' chief
adver- sary, have again reared their ugly head this week and on Monday and Tuesday produced a fair volume of nervous selling. Gilt- edged stocks, which had been basking in the sunshine of the gold reserves and dollar surplus for several weeks, proved especially vulnerable and a sharp reaction took place. Home industrial equities, on the 'other hand, showed strong resistance, but rubber and tin shares, despite the spectacular jump in the commodity markets, fell precipitately. Already, the worst appears to be over and recovery forces are well under' way. As I see- things, this week's jolt is a salutary reminder that the market rise must always be punctuated by setbacks and that the international political situation can be relied on to give us plenty of shocks. I shall be surprised, however, if the obviously inflationary implications of current developments- are not reflected in a resumption of the market advance, on cautious lines. INTERNATIONAL politics, nowadays the stock markets' chief adver- sary, have again reared their ugly head this week and on Monday and Tuesday produced a fair volume of nervous selling. Gilt- edged stocks, which had been basking in the sunshine of the gold reserves and dollar surplus for several weeks, proved especially vulnerable and a sharp reaction took place. Home industrial equities, on the 'other hand, showed strong resistance, but rubber and tin shares, despite the spectacular jump in the commodity markets, fell precipitately. Already, the worst appears to be over and recovery forces are well under' way. As I see- things, this week's jolt is a salutary reminder that the market rise must always be punctuated by setbacks and that the international political situation can be relied on to give us plenty of shocks. I shall be surprised, however, if the obviously inflationary implications of current developments- are not reflected in a resumption of the market advance, on cautious lines.
British Celanese Results • Overwhelming evidence is accumulating which supports the view that the distribution policy of British industry—and this goes for most of the largest and conservative companies, as well as the smaller fry—is now being formulated on the basis of "moderation and restraint," rather than a slavish adherence to former rates of dividend. British Celanese, whose directors could never be accused of over-generosity to the Ordinary stockholders, are now included in the rapidly lengthening list of companies to announce dividend increases. In this instance the Ordinary dividend, after being held down to 8 per cent. for each of the five previous years, is raised to 10 per cent. This payment absorbs a net amount of £121,623, against £97,299 a year ago, an increase of under £25,000. To be seen in its proper perspective this additional £25,000 which is being paid out to the Ordinary stockholders needs to be set against the consolidated net profit, after taxation, of £1,562,594, against £1,230,599. Dividend yield is not the sole criterion in judging the merits of equity shares. The 10 per cent, dividend here is being paid out of available earnings of 75 per cent., so that the shares at today's level are offering an earnings yield of 30 per cent. In my view they are good value for money.
Austin Motor Surprise Another leading industrial enterprise to step up its dividend rate is the Austin Motor Company, which announces a surprisingly sharp rise in profits for the year ended July 31. Increased pro- duction, together with the benefits in the way of larger profit mar- gins which devaluation has brought in the export markets, are reflected in a group profit figure of just over £4,500,0002 against £1,521,360 in the preceding year. The latest figure does not include an exchange profit arising out of devaluation of £473,198. Mr. Gaitskell takes his slice of this impressive increase in earnings in the shape of U.K. taxation, amounting to £2,481,522, against £837,000. Even so, the Ordinary dividend of 35 per cent, repre- sents a cautious distribution of the available net profits. This 35 per cent, compares with 40 per cent, in each of the four preceding years, but last year the Ordinary capital was enlarged by a 50 per cent, scrip bonus. If the Austin directors had been minded to maintain parity with the old rate they would have had to cut the dividend on the larger capital now ranking to 26i per cent. The rather higher payment which is being made to the Ordinary share- holders does not involve the, slightest departure from the company's policy of ploughing back a Substantial proportion of the profits.
In anticipation of good results there was_substantial speculative buying of, Austin 5s. Ordinary shares up to just over 30s. As so frequently happens, now that thenews is out some of the speculators have cashed in their profits, and the price is back to 29s. 6d. At this level the yield is approximately 6 per cent. on the 35 per cent. dividend, an attractive return when compared with the 4.1 per cent. obtainable on Ford Motor. Moreover, Austin's. 35 per cent, divi- dend is being paid out of earnings of .over 200 per cent. I do not think holders need be in any hurry to sell.
Klinger and English Stockings I called attention in June to the merits 'of the 5s. Ordinary units of the Klinger Manufacturing Company, when the price was 29s. 9d., and forecast that with growing output and demand good the next accounts would show a further sharp increase in earnings. This view is amply confirmed in the results for the year to Sep- tember 30, which the company has just announced. Trading profits have risen from £220,241 to £401,710, and the Ordinary dividend is increased from 25 per cent. tax free to 30 per cent, tax free. Nor is this the whole of the good news. To bring the issued capital into closer relation with the value of the net assets the directors are proposing a one-for-one share bonus, and in addition -stockholders are to be offered one new share, at par, for each share held. The price of the 5s. units has jumped on the strength of these results to over 40s., so that the issue terms contain a sub- stantial bonus element. This company, which manufactures nylons and pure silk stockings, mostly of the cheaper grades, is now reaping the benefit of the large sums spent on new machinery in past years. It is significant that, on the capital as it will stand after the free scrip bonus and the bonus share issue, the directors indicate that it should be possible to pay a dividend of at least 12 per cent. tax free. I think there is ample scope for a further improvement.
The Klinger figures give a new interest to the shares of English Stockings, a company which owns 222,299 of the Ordinary 5s. units of Klinger Manufacturing. This holding at today's market prices is worth approximately £450,000, and in addition the com- pany has other investments with a value of around £130,000. If one relates the total figure of £580,000 to English Stockings' issued capital, the asset value behind the shares, which have a denomina- tion of 441. each, is over Is. Today's price in the market is around 9d., at which the yield on last year's dividend is 5 per cent. With the higher dividend from the Klinger investment coming in English Stockings should now be able to step up its own dividend rate from the 11 per cent, paid for 1949, and if, as seems likely, the Klinger shares continue to go ahead, English Stockings could easily move up closer to the asset value.
Shipping Share The steady improvement in tramp freight rates is now receiving some recognition in the shipping share market and prices are making a good recovery from the low levels reached in the' early part of the year. Among the shipping shares which still look undervalued are Cairn Line 10s. Ordinary units, now qunted around 15s. This company, which is closely associated with Furness, Withy and Company, owns vessels, all fitted with refrigeration, operating between Great Britain and Canada. It has paid a 71 per cent. dividend in each of the past four years out of earnings which have ranged between 25 per 'cent. 'arid 40 per- cent. At 15s. the current yield is therefore 5 per cent., a reasonable return having regard to the strong earnings cover. What lends special interest to the shares is the large surplus of cash and other liquid assets in the balance sheet. At December 31, 1949, the company had over £850,000 in cash and marketable investments? and its total net liquid assets were £862,503. That figure is equivalent to 14s. 3d. on the 10s. Ordinary units, or practically the whole of the current market price. It follows that a buyer at today's level is giving practically. nothing for the company's fleet. Possibly the board will spend part of this money in acquiring new tonnage but appears likely that stockholders will receive some return pf capital. In the latter event the shares would look very cheap at today's price.
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