FINANCE AND INVESTMENT
By CUSTOS
IN the light of the successive increases in defence appropriatio in the United States and the enlarged defence programme prop° for the United Kingdom it is now clearer than ever that we entering a phase of heavy re-armament spending. Whatever do assistance is forthcoming from America, there will have to be so diversion of economic resources here from peace to war purpos and, at a later stage„ fresh counter-measures to contain inflatiol That points to the probability of increased taxes, if not by tf ,end of the year, at least in the budget next April. In my vie' there should be no attempt to increase the tax burden on industt or to " soak the rich." The main adjustments could well corn from a pruning, long over-due, of the Government's non-defeat expenditures and a moderate cutting-down of the capital invei ment programme. So far the market has reacted appropriately i the re-armament prospect. Iron and steel, aircraft and othr engineering shares have been supported and there has been gradually broadening interest in commodity shares. These trend seem likely to continue, always provided that the Korean via does not develop into a major conflict.
That possibility obviously dictates caution but does not, in m view, call for complete liquidity. During the next few critic weeks market activity .isInot likely to increase substantially, but it clear from the present behaviour of prices that, barring adven news of a major kind, the trend is towards higher levels.
Bid for Tilling-Stevens
Few stockholders in Tilling-Stevens, the commercial vehicl manufacturers, are likely to raise any serious objections to th offer made by the Rootes Group for financial control. The term 'of the bid seem to me to be generous, having regard to the rece experience of Tilling-Stevens as a small producer of high-gra vehicles in an essentially competitive market. For the year March 31, 1950, the company reported a net loss of just ov £30,000, which resulted in no dividend being paid on the Ordina stock, against 7-4 per cent. for the preceding year. If one tail an average over the past ten years it works out at approximatel 6 per cent., and never -during that period has the dividend rat exceeded 74 per cent. That is the background against which one has to judge th fairness or otherwise of the terms now offered to shareholder of the Ordinary stock.; The Rootes Group's proposal is that th whole of the Ordinary capital be converted into 5 per cent. Cum lative Preference shares, with a dividend guaranteed for two year starting from August 1, "1950, and that in return for agreement t this conversion plan Tilling-Stevens' Ordinary stockholders shout also receive ls. per ls. unit in cash. As the new Preference sham should command something close to their par value the offer real amounts to not far short- of 2s. per ls. unit, which compan favourably with the average price of the unit during recent year and especially with the level of around is. at which they stoo in the market shortly before the deal was announced. To-day' quotation of Is. 101-d. seems to put an appropriate valuation a 17s.. 6d. on the new 5 per cent. £1 Preference shares. In judgin the deal the fact must also be kept in mind that Tilling-Stever is urgently in need of additional resources to finance plat modernisation and extensions. This money will be put in by tit Rootes Group, who have undertaken as a first instalment to sill scribe for one million new Ordinary ls. shares at par.
Grayson, Rollo Bonus Plan
Having referred on ont'or two previous occasions in these note to the merits of the 2s. 6d. Ordinary shares of Grayson, Roll and Clover Docks, the ship repairing concern, I am not surprise that this company is proposing to give another capital bonus, th time by way of Ordinary shares. Application has been made the Capital Issues Committee for permission to make a 100 Pe cent. free scrip bonus, which will involve capitalising £157,650 at of available reserves and undistributed profits. Admittedly, dl mere doubling of the Ordinary capital does not in itself add an value to the existing Ordinary shares, but it is clearly a sign confidence in the outlook on the part of the board. Significan0 the proposal for the share bonus is accompanied by an intimatio that the profits for the year ended March 31, 1950, have shot a further improvement. The interesting point is what divided
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FINANCE & INVESTMENT—(Continued from page 192) Ordinary shareholders .may now expect. For the year e March 31, 1949, the 10 per cent. payment was made out of a able earnings of well over 200 per cent. Allowing for Preference bonus given a year ago it would now seem that if Ordinary capital is doubled it would still be well within the c pany's capacity, and fully consistent with conservative finance, 1 maintain the 10 per cent. rate. Something of the kind is clear anticipated in the market in the current quotation of arow 7s. 3d. for the 2s. 6d. shares. There is a tempting profit for tha who bought at substantially lower levels some months ago b I do not see that there need be any hurry to take it.
A s p.c. Yield To investors who are not content with the 4 per cent. retun which are all that can be obtained in present conditions on to class Debenture stocks, the 5 per cent. yield on the 4f per co First Mortgage Debenture stock of A.V.P. Industries may mai a stronger appeal. This company was established to effect a mere of Austin Veneer and Panel and a number of similar. businessi and it is apparent from the first accounts of the merger coverii the year to March 31 that the grouping of the various operati subsidiaries has resulted sin improved production and increast efficiency. Since the end of March the factories have continui to be well employed and demand remains satisfactory in all sectio of the business. The important point so far as Debenture stod holders are concerned is -that on the latest figure the 44 per ceo interest is covered over four times. As to capital the cover over 2f times. Issued in March, 1949, at 101 the Debenture sta is now quoted in the market around 90, at which it returns a fi 5 per cent. This seems to me a generous return.
Head, Wrightson Progress Two years ago, when the market quotation was around 33s.,' outlined the merits of the £1 Ordinary shares of Head, Wright the Teeside engineers who specialise in the manufacture of i and steel plant and mining equipment. The progress of this ahead concern has been well maintained, and now the board joj the ranks of those who interpret dividend limitation in a ration; sense. Having increased the Ordinary share capital last Octol by a 25 per cent. free scrip bonus the directors are now payis 10 per cent. on the larger capital—the same percentage rate as i the three preceding years. To have maintained strict parity' wit the previous rate the dividend should have been reduced to 8 p cent. Only a glance at the earnings position is necessary to awl ciate that the small though welcome increase in the total amour distributed to the Ordinary shareholders does not involve as departure from sound and- cautious distribution policy. Grou net profits for the year to April 30 have risen from £220,828 to new record of £248,316. Since they have been struck after chart' £301,285, against £261,510, for taxation gross trading profits mu have shown a further satisfactory improvement. From tt preliminary figures it seems that the 10 per cent. Ordinary divided is being paid out of available earnings of something over 40 P cent. Following these results the £1 Ordinary shares hai remained firm around 42s., at which they are yielding just mull 5 per cent. In view of the progressive management, sound balm sheet and the promising trading prospects, the shares still look we worth holding.
A Low-Priced Rubber Share Rather belatedly the' rubber share market is making see response, though still a cautious one, to the sharp advance whirl has taken place in recent weeks in the price of the commodity) Mincing Lane. Among the £1 shares which look undef:Nalued are those of Novi Hummock (Selangor), a Malayan producer, which are now quota around 5s. 9d. For the year to March 31, 1950, this comp made a small profit, equivalent to just over 4 per cent. on its iss capital, on rubber sales at an average net price of just under 1 a pound. The crop was 1,166,082 pounds. For the cur financial year the board's estimate is for a crop of 1,130,000 you or slightly less than that of the preceding year, but the aver selling price is clearly ,going to produce a much larger reve The company has not paid dividends since 6 per cent. was fo coming in 1941, but it has a reasonably strong financial pnei and should certainly be able to re-enter the dividend list for current year. In 1948 the- shares were up to 7s. and in 1946 reached 9s. 9d. There appears, therefore. to be good scope improvement.
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