FINANCE AND INVESTMENT
By CUSTOS IN face of many uncertainties, domestic as well as external, stock markets are putting up a brave show. 4 With the £20 million Anglo-Iranian debenture issue so success- fully launched, the market in fixed-interest stocks has remained quite firm and the gilt-edged section has taken the resumption of local authority borrowing in its stride. These are hopeful signs, even though one must remember that there are still plenty of borrowers waiting in the queue. What is perhaps more surprising is the performance of industrial equity shares which, so far from wilting under the pressure of the accumulating evidence of increasing com- petition and reduced profit margins, have been moving up. One helpful factor is, of course, the effect on investment psychology of the numerous take-over deals—to say nothing of reported bids—which have pro- vided a powerful remainder of the discrep- ancy which still exists, over a wide range of equity shares, between current prices in the market and asset values. Not only have the deals, whenevet,completed, put money into the lucky shareholders' pockets but they have undoubtedly reinforced investors' reluc- tance to sell. While I shall be surprised if anything approaching a boom develops in industrial equities—there seem to me to be far too many dangers ahead for that—I regard the prospect more hopefully than seemed justified when the year began. The aircraft, building-materials and engineering groups—provided one is discriminating— look as well placed as any to join in the recovery.
The Banks' Investments There has been no encouragement to optimism in the bank chairmen's statements. On the contrary. While all have recorded their satisfaction at Mr. Butler's use of the weapon of dearer money and the breathing- space he has gained for the sterling area, they have been equally emphatic that the, need still remains for tougher anti-inflation policies and especially, of course, for a really rapid and substantial pruning of the Govern- ment's own spending. I must add that the bankers have also urged a reduction in taxation, especially on industry, and that, if it materialises, would undoubtedly help the security markets. But part of the price may have to be a deliberate cutting down of personal consumption by other means.
What of the banks' balance-sheets ? Thanks to the substantial improvement in gilt-edged prices in the second half of last year they again look tremendously strong. As expected, the National Provincial which last July was alone among the" Big Five " in adhering to its customary practice in showing its gilt-edged holdings "at under market value "again follows the same pro- cedure. Its inner reserves are ample to cover depreciation. The other members of the "Big Five" have found no reason in the gilt-edged recovery for resuming their former practice. They show their invest- ments at under cost and below redemption price, but at December 31st market values were, in fact, above book values. At the moment, therefore, there is nothing in the banks' investment position to stand in the way of their following the National Pro- vincial's lead and raising their dividends. Shareholders are certainly entitled to a modest participation in any further increase in earnings. Bank shares, as I pointed out last week, look attractive holdings.
Woolworth's Dividend Surprise Nothing seems to check the record- breaking progress of F. W. Woolworth, the chain store undertaking. Last year, in spite of rising costs, this company succeeded in raising its profit, before taxation, from £14,583,889 to a new peak of £16,300,451. One helpful factor was doubtless the greater availability of supplies ; another would be the tendency when times are less easy for shoppers to concentrate on goods in the lower price-ranges. Above all, this company is still benefiting from expansion policies pursued by an alert and energetic manage- ment. Last year the Woolworth chairman, Mr. S. V. Swash, warned shareholders that the heavy burden of taxation was one of the obstacles standing in the way of an increased dividend. The preliminary figures for 1952 now show that the tax burden has been quite unexpectedly heavy, but the board have, nevertheless, decided to adopt a much more generous attitude towards the Ordinary stockholders. The company's total tax bill has risen by over £2 million to £10,530,384, a figure which includes no less than £1,475,000 as provision for Excess Profits Levy. In consequence, net profit, after tax, is down from £6,196,675 to £5,770,072. Thanks to last year's sub- stantial increase in the carry-forward, how- ever, the amount available for dividend and reserves is rather larger, and it is a clear indication of the board's confidence in the outlook that they have decided to increase the Ordinary dividend from 421 per cent. to 55 per cent. (including a 5 per cent, cash bonus). This payment has exceeded even the City's most optimistic forecasts and has resulted in a rise in the 5s. Ordinary units from 47s. to 49s. 9d. At this level the yield is rather more than 5+ per cent. Are the shares still cheap ? The return, one must confess, is now rather below what can be obtained on many other "blue chip" industrial equities, such as Imperial Chemicals, and the cover behind the dividend—earnings appear to be about 67 per cent.—is not very strong. On the other hand, I think one can still regard Woolworth's Ordinary units as a progressive industrial investment, since the growth possibilities of the business have not yet been fully exploited. My summing- up is that the units are still moderately attractive as long-term investments but that their immediate speculative possibilities must be regarded as somewhat limited.
R. A. Lister Progress The record order-book with which R. A. Lister, the diesel engine and agricultural and dairy machinery makers, began their year has found reflection, as shareholders hoped, in increased profits. After providing £409,157, against £391,783, for taxation, there,is a net surplus for the year to Sep- tember 30th of-£264,836, against £233,746, raising earnings on the Ordinary capital to about 16 per cent. At the annual meeting in February the chairman indicated his wish to increase the dividend but reminded share- holders of the desirability of conserving resources in view of the uncertain conditions abroad. I think, therefore, that one must read into the board's decision merely to maintain the 9 per cent, rate in spite of the increased profits an indication that the outlook should be viewed with caution. Around 31s. the £1 Ordinaries yield 5f per cent., a reflection of the company's financial strength and progressive management. I regard the shares as about right for the present.
A Publishers' Share Butterworth & Co. (Publishers) is a familiar name to present and former students of law. Their publications include such major works as Halsbury's Laws of England (as well as more popular text books), The Law Journal, All England Law Reports, Law Times and other legal, medical, scientific and technical books and journals. For the past six years dividends of 30 per cent, have been paid on the 5s. Ordinary shares out of earnings ranging between 24 per cent. and 57 per cent. These shares, I notice, have lately been changing hands around 16s., at which they offer the high yield of 9f per cent. Surprisingly, in the light of the stable dividend record, the price of the shares has fluctuated between the wide limits of 41s. 6d. and 14s. 41d. in the last six years. Last month the interim dividend was maintained at the usual rate of 15 per cent., which sug- gests that the total payment for 1952 will be maintained at 30 per cent. In a business of this kind goodwill is probably the most valuable asset, and Butterworths' goodwill and copyrights should be worth consider- ably more than their book value of £155,000. While the shares are not a very active market, they offer an attractive yield, with- out, it would seem, excessive risk. I think they deserve a place in any mixed investment list.
Cash at a Discount Investors who would like to buy liquid assets with the possibility that patience will bring a capital profit might like to consider the 5s. shares of Phoenix Prince Gold Min- ing now quoted in the market around 2s. 6d. In its last balance-sheet dated March 31st, 1952, this company had net liquid assets, consisting almost entirely of cash, equivalent to about 2s. 9d. a share. At the present price, therefore, a buyer is acquiring all the remaining assets for rather less than noth- ing. There is also the attraction that this Southern Rhodesian gold mining company is paying a small dividend. For the year to March "31st, 1952, it paid 5 per cent., on which the shares at the present level give a return of 10 per cent. Ore reserves are small but profits have recently been on a higher level through sales of gold at premium prices in the free market. The strength of the position, as I see it, is that shareholders have every right to expect a substantial return of capital out of the large liquid resources. If the company return 2s. a share, which would cost £200,000, it would still be left with ample money for operating the property. Doubtless this view will be expressed at the coming annual meeting and I see no reason why the directors should not accept it.
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