FINANCE AND INVESTMENT
By CUSTOS FOREIGN news came flashing over the ticker- tape machines, brokers went running into the " House" to deal—it was almost like pre-war days in Throgmorton Street this week. If only there had been more business behind all the flurry 1 The Adenauer victory in the German elections caused great excite- ment in the market—and in Berlin, too, where heavy buying of industrial equities was seen. Here in London the 41 per cent. " Young" loan was outstanding with a rise of 5 points to 82, while the 5 per cent. " Dawes" loan rose 3 points to 594. If we add the payment made to these bondholders by the Custodian of Enemy Property— £7 5s. 6d. for " Young" and £8 4s. 10d. for " Dawes"—these two loans have appre- ciated by over 35 per cent. and 45 per cent. respectively from the low levels of 1953, which was not so long ago. Speculators who bought these bonds on the conclusion of the German debt settlement last year can now retire thankfully with a profit. The German Ministries.concerned have not yet formally ratified this agreement. No snag has been reported—only some question of the priorities for " Young" and " Dawes" —but when a German negotiates from strength he usually becomes extremely tough. And the daily increasing political strength of Germany is the outstanding news from abroad which also caused some minor excitement this week. Foreign bonds and foreign railways should certainly be left to " professional" interests. The boom in domestic stores, which must be getting near its top (for the index of retail stores has risen 72 per cent. this year), has been con- tinued under the lead of Great Universal Stores, which has scaled new peaks. The optimists apparently believe that Mr. Isaac Wolfson will announce another bonus at the coming general meeting. The " bid" shares remain firm, although I must report that a rumour that the " bid" was off caused a reaction in Moore's Stores. Buying is still coming in for retail stare shares which may attract " bids." For example, R. Gunner, to which I drew attention last week, enjoyed a quiet rise of nearly 25 per cent.
The Strange Case of Milford Docks There has been much debate over the ethics of these " take-over" bids. Cer- tainly, the sensational rises which have been seen in some shares have enabled speculators to make huge capital gains they do not deserve.. Morally, perhaps, they are no worse than backers of horses and winners of football pools. It is difficult to-see what the Stock Exchange Council can do about it. If shares are selling at market prices well below their real assets value or their true earnings value there is nothing to stop an enterprising financier or a rival firm from making an attractive bid to the shareholders. Of course, if misleading information has been given, or the directors have failed to disclose information that ought to have been pub- lished, the Stock Exchange Council can stop dealings in the shares. But my sympathies go out to the directors who have had no information and cannot confirm or deny the rumours of approaching " bids," They are placed in a very embarrassing position. Take, for example, the extraordinary case of Milford Docks. These shares have been as low as 9s. 9d. this year. Today they are quoted at 44s. 6d. and return an earnings and dividend yield of little over 11 per cent. When the aggressive buying started on the usual rumours of " take-over" the directors were pressed to make a statement but had no information to offer. Finally they were approached by a ship-repairing firm, who desired to make an investigation into the possibilities of• enlarging the dry dock to accommodate the largest tankers. The directors willingly granted this firm facilities for their investigation. More aggressive buying followed and the shares topped 46s. But still no word. If no bid materialises there will be the devil to pay. The directors haye acted in an exemplary fashion. The "aggressor" is surely taking liberties with their good will and the public trust.
Unpopular Preference Shares Fixed preference shares are deservedly unpopular as a type of security. But there are some whose unpopularity is quite startling. Take, for example, Jays and Campbells (Holdings) 4 per cent. guaranteed stock, which is guaranteed as to principal and interest by the Great Universal Stores, which controls the company. The fact that G.U.S. has just reported net profits of over £3 millions did not seem to affect this 4 per cent. guaranteed stock (the service of which requires only £21,000 net), for it remains quoted in the market at about 13s. 71d. to yield nearly 6 per cent. Is it because the 51 per cent. preference shares of Jays and Campbells, which are not guaranteed, yield 7 per cent. ? Even so, it is not very compli- mentary to Mr. Isaac Wolfson, of G.U.S. Then there are Odeon Theatres 6 per cent. preference shares, which had their dividends passed in 1950 and 1951 but had all arrears paid by the end of last year. The results for the year to June, 1953, which were published last week, showed that the preference divi- dends were covered nearly fourteen times ; but these 6 per cent. preference shares are still quoted at only l ls. to yield nearly 11 per cent. It seems an unkind slur on Mr. J. Arthur Rank's reputation for (now) prudent finance. Conservative management does not apparently always impress the market. If it did there would not be so high a yield on the fo per cent. preference shares of Pro- vincial Cinematograph Theatres, the oldest established company in the Rank group and, indeed, in the whole film industry. I cannot trace that this dividend has ever been passed —it was- last' covered 1.8 times—but the shares can be bought at 15s. 6d. to yield nearly 13 per cent. If ever this company failed to pay on its preference shares it would point to a disaster in the trade which would affect many other film securities yielding less than 13 per cent.
Nursing Copper Losses Those who had rights to subscribe to the 5s. shares of Bancroft, the new Rhodesian copper mine, would do well to cash in their premium, which was Is. 3d. when dealings started this week. For at 6s. 3d. Bancroft shares do not really compare well with N 'Changa or the older producers in Rhodesia. I presume that many investors must be nursing heavy losses on Rhodesian copper shares. Looking back to the high levels of last year, when some of the optimists were tempted to buy them, Rhodesian Anglo-American has lost nearly a third of its market value, Rhokana and Rhodesian Selection Trust about 30 per cent., N'Changa about a quarter and Roan Antelope about a fifth. Clearly, they are not suitable shares for the widow and orphan. The reason for the fall is, of course, that the market antici- pated the freeing of copper from official control (this happened last month) and expected the metal to slump in price, as tin, lead and zinc did. In point of fact, it behaved better than some people feared. From the pegged price of £2524 per ton it slumped to £2121 but has picked up this week to over £230 for cash and £216 for three-months delivery. Obviously, a lower price is anticipated by the end of the year, but statistically copper is not in the weak position of some other commodities. Exclud- ing stock-piling, world consumption (which was 2,730,000 tons last year) exceeded world production by about 140,000 tons. The City seems to think that the price will not fall much below £200 a ton. At this level the Rhodesian copper companies can still make excellent profits, for they are the cheapest producers in the world, and could' still pay the same dividends, if my calcula- tions are correct, though I would expect a few cuts. If I were a shareholder I would be content to draw the princely dividends they are now paying and wait for the dear- cost producers in the United. States and Chile to complain loudly to their Govern- ments that they cannot 'live on the dollar equivalent of £200 per ton. At present market prices the dividend yields are some compensation for the risks of mining a wasting asset in a country where the native labour is particularly restive. Without allowing for Dominion income tax relief Rhodesian Anglo-American, the Trust which holds Rhokana and N'Changa, returns 124 per cent. at 48s. 6d. For the reasons which follow, however, I would be tempted to average on Roan Antelope at 13s. 9d.
Roan Antelope Roan Antelope published its quarterly earnings this week, so that it is possible to work out the results for the year ended last June. Its profits, before taxation, jumped from £81 millions to nearly £111 millions. A normal tax charge (N. Rhodesian and U.K., including excess profits levy) would reduce those earnings, after allowing for administrative expenses and loan stock service, to about £41 millions—against £3.6 millions in the previous year. This suggests that the final dividend to be declared next month, will be raised. If 50 per cent. is paid for the year against 45 per cent.—this modest increase would still allow the company to plough back more than last year—the yield at the present price would be over 18 per cent. or over 28 per cent. allowing for 7s. 6d. tax relief. These earnings and dividends are based, of course, on a price of copper of £250 or more. Although its costs of pro- duction are higher than N'Changa, Roan Antelope could still earn 40 per cent. (before depreciation) if copper fell to £200. And from June 30th last if has changed its domicile to Rhodesia, so that its U.K. income tax reserve will be released. Whether it will use this to pay a special bonus or to build up a dividend equalisation reserve is anybody's guess. But when the full accounts are published next month it should be a very impressive result.
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