FINANCE AND INVESTMENT
By C LISTOS ALTHOUGH markets are still inactive and understandably cautious they have suc- ceeded at least in staging a moderate recovery. The lead has come, as one expected, from gilt-edged which have drawn some encouragement from the latest quar- terly figures of the gold and dollar reserves. While the further loss of reserves for the past three months, at 636 million dollars, is depressing, the trend of events, as reflected in the loss of only 71 million dollars for March, is definitely favourable. Even allowing for the help of 75 million dollars of special and non-recurring receipts it is apparent that Mr. Butler's Budget, flanked by the rise in the Bank Rate, has set up a world-wide covering of short" positions in sterling. This is a short-run factor—and " bear " re-purchases can only take place once—but with the sterling area's reserves reduced to a dangerously low level, it is a factor of immense importance. It now looks as if, with reasonable luck, the Chan- cellor will succeed in his aim of getting sterling over the " June hump." Even then, of course, his task will still be for- midably grim, which suggests that there is no likelihood of any sustained improvement just yet in security prices. It is hard, indeed, to avoid the impression that with borrowers' needs still pressing heavily on available investment reserves, markets will do well to consolidate their recent gains.
Ford Motor Outlook From the full accounts of the Ford Motor Company investors will again get an impres- sion of the immense strength of this pro- gressive group, but at the same time they are left in no doubt about the problems which complicate the earnings outlook. Last year, despite a slight decline in volume, the total income of the Ford Company increased in value by just over 5 per cent. to £68 million. In his statement Sir Rowland Smith emphasises that about 80 per cent. o the group's cars and tractors and more than 55 per cent. of its commercial vehicles were sold in export markets. Australia was again the chief buyer, and he naturally warns stockholders that during the period of severe import restrictions now imposed by the Commonwealth company's business will be seriously affected. It is obvious that with characteristic boldness and foresight the Ford Company is not allowing the problems on the selling side to slow down its policy of modernisation and expansion. Once again the balance-sheet position reveals great strength. A further £2,750,000, against £2 million for 1950, has been set aside towards the £14,641,000 estimated as being the proportion related to expired life of the eventual excess replacement cost of fixed assets at current price levels. The liquidation of the Ford Investment Com- pany which was completed early last year has yielded a surplus of £4,578,594, now transferred to capital reserve. Since I out- lined the merits of Ford £1 Ordinary units on March 28th the price has improved by 2s. to 45s., at which the yield is just under 61 per cent. Even allowing for all the obscurities which surround the motor trade outlook I regard these shares as a sound industrial holding. Steel Companies Surprise It is afready apparent from the public accounts of several of the nationalised iron and steel companies that when the promised unscrambling of the industry takes place the financial position of many of the leading undertakings will be very different from what it was before vesting day. The capital struc- ture of some companies, such as Dorman, Long, has been radically altered, doubtless on the instructions of the Iron and Steel Corporation. High-rated Preference shares have been converted into Ordinaries and Debentures have been paid off. Other concerns, of which Hadfields are an out- standing example, have incurred loans from the Iron and Steel Corporation. Yet others, such as Lancashire Steel Corporation, have lent money to the Iron and Steel Corpora- tion out of their surplus liquid resources. It is clear, therefore, that the Iron and Steel Corporation has transferred cash from the coffers of some of the companies with a surplus to finance developments in under- takings which have been short of cash. How all this will affect financial unscrambling remains to be seen, but it is obvious that holders of a particular class of capital in a nationalised company can no longer expect to be restored to precisely the same position as they were in before vesting took place.
British Borneo Timber In these days one hesitates to draw atten- tion to the merits of speculative shares for capital appreciation, but one such share which does appear to me just now to have attractions is the 2s. Ordinary of British Borneo Timber. Last week it was announced that in June the Government will pay £392,729 to this company in consideration of the termination of the concession. The Government have also guaranteed the com- pany aggregate net profits for the three years to July, 1955, at not less than the aggregate for the three years 1948-50, when dividends of 8 per cent., 10 per cent. and 20 per cent. respectively have been paid out of much higher earnings. The point which gives especial interest to the shares is the company's immensely strong and liquid balance-sheet. At the last balance-sheet date of December 31st, 1950, the company had net current assets, after deducting provision for future taxation, of just over £200,000. That, on the company's issued capital of £180,000, was equivalent to 2s. 3d. on the 2s. shares. On top of that war damage compensation has been agreed at £85,342, of which £21,335 has already been received, the balance being payable in three annual instalments. If one adds in this sum, together with the £392,720 to be received from the Government in June, the company will have in net liquid assets the equivalent of over 7s. 6d. a share. At present these 2s. shares are quoted in the market around 5s. 44d., so that a buyer is, in fact, paying 2s. a share less than the net liquid asset value. Apart from its liquid resources this company has saw mills and other fixed assets carried in the balance-sheet at £119,383, a figure which has been arrived at after deducting £114,900 for depreciation. Shipping Prosperity Investors are given a foretaste of what last year's steady rise in freight rates may bring in the way of increased profits in the 1951 results now announced by British Steamship. This company plies the Atlantic trade among others, and despite the rise in costs reports an increase in profits on voyages from £235,156 to £1,201,741. After making the usual provisions, including tax and depreciation, net profit is shown at £786,697, against £87,462 for 1950. On the strength of this spectacular expansion in earnings, Mr. Edmund Watts and his co- directors have raised the Ordinary dividend from 10 per cent. to 15 per cent., the higher rate involving a distribution of £79,000. One need only look at the net profit figures and the various allocations to reserves to see that this represents a very conservative decision. Reserve for replacement of ton- nage receives £400,000, against nil ; £325,000, against £25,000, is put to tax equalisation reserve, and the carry-forward is raised from £177,175 to £204,102. Some share- holders may feel that there might well have been a steeper increase in the Ordinary .dividend, but they may be reminded that this company ordered three new ships during the year and that freight rates in 1952, although still very remunerative, are scarcely likely to equal the average of 1951. Follow- ing the profit and dividend announcement, British Steamship 16s. Ordinary stock units have moved up by Is. 6d. to 23s. At this level they are offering the generous return of 11 per cent.
A. Reyrolle Strength It is rare and refreshing in these days to come upon a company which, in spite of increasing business, is still able to show itself amply supplied with liquid resources. This is the fortunate position of A. Reyrolle, the electrical engineers, whose latest balance- sheet shows an increase in stock and work in progress of nearly £700,000 to a new peak of £3,454,388, flanked by a cash balance of £1,884,098, tax reserve certificates of £700,000 and a total surplus of liquid assets over current liabilities of £5,400,000. For 1951 the board has increased the net distribution to Ordinary stockholders by about £22,000 to £106,800, but in doing so it has adhered to its customary policy of setting aside very large sums to reserves. Altogether, nearly £650,000 has been appropriated to reserves out of last year's net profit, after tax, of £902,059. In his annual statement Sir Claude Gibb points out that last year's increase in trading, profit, before tax, from £1,747,464 to £2,099,622 was achieved in face of shortages of essential materials. It resulted from an increase in output and from a higher profit margin on trading, reflecting the benefits of past extensions and modernisation of plant. As the order book, both for home and overseas business, is still running at record level the earnings outlook must be judged promising. This gives the £1 Ordinary shares-of Reyrolle considerable investment attraction at the present level of 41s. 9d. If, as seems reasonable, it can be assumed that the directors intend to pay 124 per cent. on the Ordinary capital as recently doubled by a 100 per cent. scrip bonus, the return will be around 6 per cent. on a dividend which appears to be covered about seven times over. If only 10 per cent. is forthcoming the yield will be 44 per cent.
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