FINANCE AND INVESTMENT Courtaulds Position Well to the front in
the rally in the textile share market are Courtaulds' £1 Ordinary units, which have moved up from 33s. 6d. to 35s. 6d. When the preliminary figures, accompanied by -the chairman's warning, were published last month I suggested that holders should not sell, and I see no reason to revise this view in the light of the position now disclosed in the full accounts. Sir John Hanbury-Williams, the Courtaulds chairman, again underlines the fact that the rayon industry in this country and abroad is still passing through a major recession. On the other hand, he promises to give more up-to-date news at the annual meeting on July 30th. By that, time the June rayon output figures will be available, and it is just possible that he may be able to review the outlook in rather less sombre terms. Mean- time, the outstanding feature in the consoli- dated balance-sheet is a rise in stocks of £8,600,000 to a peak of £22,232,311. This heavy increase is only partly due to rising prices of raw materials. It has arisen mainly out of an accumulation of raw materials and finished stocks forced upon the company by the considerable reduction in the volume of sales during the last quarter of the year. The chairman also discloses that for the general purposes of the company Courtaulds sold nearly £11 million of Government securities, realising a capital profit of £113,000. Flanking this operation is a further increase in the group's investments overseas, especially in the United States, Canada and Australia. It is thus apparent that whatever may be the near-term pros- pects for the rayon industry, Courtaulds are ON the strength of the quarterly gold reserve figures, better news of coal production and prospective export sales and a small reduc- tion in textile unemployment markets are now staging a broad rally. As I emphasised i last week, there is no substantial increase in 1 public buying, but the " bears " are being driven to take cover and, most significant of all, the pressure to sell has relaxed. At this stage only the boldest of optimists would be prepared to take the view that the worst is over and that now is the time to re-enter the market in an ambitious way. The reduction of the gold drain to a mere trickle is indeed encouraging, as are the coal output figures and the indications that the textile trade recession is not getting any worse. But the outlook is still full of uncertainties. Much remains to be done to put our balance of payments position on a sounder basis and the " much " may possibly include a further rise in money rates. Then again, from the standpoint of industrial profits and divi- dends, conditions have become so much more competitive that in most branches of activity investors must be prepared for earnings well below the peak levels of 1950- 51. The optimists will argue that lower profits and in such groups as textiles and commodity shares, greatly reduced dividends i are already allowed for in the current level of quotations. They are, 1 agree, on the long view but the possibility must not be ruled out that before real recovery sets in we may have to go through a more difficult phase. Caution and discrimination should therefore remain the investor's watchwords. going ahead strongly with their overseas enterprises, doubtless acting on the view that the long-term prospects of the industry are good. At 35s. 6d. the £1 Ordinary units are quoted to yield 61 per cent. on last year's 111 per cent. dividend. This is a case in which investors should be prepared for a lower dividend during the current year, but provided buyers are not worried about immediate income yield I think the shares are well worth holding.
Boots' Stock Losses In announcing its group trading profits for the year to March 31st at £2,610,785, against £2,582,966, Boots Pure Drug Com- pany emphasised that the latest figure had been struck after making special provision for stock losses. There was some surprise in the City that the full report made no reference to these losses either ' in the accounts themselves or in the directors' remarks. Lord Trent, in a special chairman's report, which is to be presented to the annual meeting on July 17th, steps into the breach with an explanation that the amount involved was " over £100,000," which was written off out of current profits and without drawing 6n the company's stock reserve. Lord Trent also points out that while the amount which the group has invested in stock is now about £11 million above the pre-war level the rate of turnover in retail stocks last year was the highest in the recent history of the company. The latest profits were affected by a slowing-down of sales between the beginning of January and the end of March. That, added to the fall in gross profits due to reductions in prices and increased costs, brought the net profit figure below what had at one time seemed likely. On the other hand, since April 1st retail business has shown " a healthy increase " and the indications are that in the current year earnings will be maintained at a satis- factory level. Boots' 5s. Ordinary units are quoted around 18s. 9d. to yield 51 per cent. on a well-covered dividend. I regard them as adequately valued for the time being.
Cinema Trade Prospects In his annual statement to shareholders of the Associated British Picture Corpora- tion Sir Philip Wader throws interesting light on the position and prospect of the cinema trade. In view of the growing com- petition of television cinema investors will be reassured by Sir Philip's disclosure that during the year -to March 31st attendances at this group's theatres at 207,700,717 showed a reduction of only 2 per cent. Gross receipts at £19,960,394 were up by £1,059,280, but 40 per cent. of this sum was absorbed by Entertainments Duty and Eady Levy. Sir Philip points out that in this group's circuit the average sum paid per admission during the year was approxi- mfftely 1 s. I Id., of which Sid. was paid away in Entertainments Duty and Eady Levy and another 51d. as rent for the films exhibited. There was thus only 81d. left— with which to meet all running expenses of the theatres (wages aloft accounted for 3d.) and all maintenance, overhead expenses, depreciation and other charges. In the end the company was left with only the minute sum of 1d. per admission to provide for reserves and 'dividends on £9 million of Preference and Ordinary capital. Operating in such a harsh financial environment the company has done well to maintain its Ordinary dividend at 20 per cent. It has done so at the expense of cutting down the allocation to general reserve from £700,000 to £100,000, but shareholders will note with satisfaction that the secured indebtedness of the group is down by another £840,157 to £2,880,707. It has, in fact, fallen by nearly £2 million over the past two years. A cautious view of the outlook is reflected in the quotation of 9s. 6d. for A.B. Picture 5s. Ordinary shares, at'which they are priced to yield about 101 per cent.
H. C. Stephens Recovery Preliminary figures for .1951 of Henry C. Stephens, the ink manufacturers, indicate that a start has been made in restoring the fortunes of this company. Group profit was up from £10,145 to £61,224, and after deducting tax of £36,135, against £10,010, and writing off £21,933, against £11,200, in respect of the French subsidiary the parent company has come out with a small net profit, against the 1950 loss of £14,799. It would have been, possible on the strength of these figures to have made some small pay- ment on account of the arrears of Preference dividend, which date back to Dezember 31st, 1949,-but it is perhaps not surprising, in view of the obvious need to conserve cash, that the directors are merely raising the carry- forward by £7,250 to £22,326. Some months ago I outlined the attractions of Stephens' £1 Ordinary shares, which at one time last year reached 9s. In the recent setback in markets they have come down to 4s. 3d. They seem to me to have possibilities as a recovery speculation.
A 20. per cent. Yield High yields, as every investor should know, contain a warning that the dividend rate on which the yield is based is judged to be insecure. There are many instances, however, in which the market's fears are exaggerated and in which the return on shares does something less than justice to their real merits. This seems to me to be true of the 2s. Ordinary shares of King's Motors (Oxford), the motor-cycle and car dealers, which at their present price of 7s. yield no less than 20 per cent. on the 70 per cent. dividend which has just been paid for the year to March 31st, 1952. The chair- man's frank warning accompanying the accounts, that the latest profits probably represent a peak " at least for the time being," has doubtless had something to do with the present market valuation. He also points out, however, that present indications for the first three months of this season are that the year's results will be satisfactory unless there should be some marked deterio- ration in trading conditions. At first sight the balance-sheet suggests an urgent need of additional working capital, in that an increase of nearly £100,000 to £402,356 in stock and work in progress is flanked by bank overdraft of £18,842. The chairman explains, however, that the high figure of stock was partly due to seasonal factors and that since the balance-sheet date bank overdraft has been paid off and the group now has a substantial cash balance. With its business mainly in the motor-cycle trade the company should continue to give a good account of itself.
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