FINANCE AND INVESTMENT
By CUSTOS How quickly investment sentiment veers from gloom to cautious optimism and then back, if not to gloom at least to diffidence, has been amply demonstrated in recent weeks. After a broad and fairly substantial recovery markets have been halted by Mr. Churchill's latest warning of the problems which still lie ahead and of far-reaching measures which may be needed to solve them. Although it has been plain to all except those who cannot see beyond their own noses that a new testing-time is approaching, the Premier's reference to far- reaching measures has inevitably created fresh uncertainties in the minds of investors and the buying movement has suddenly dried up. The main trouble, as I see it, is that British exports are falling well below esti- mates. Either they must be given a vigorous push through switching from rearmament or there will have to be further cuts in imports—probably both. There is also the possibility—I still do not rate it higher than that—of another increase in the Bank Rate. Compared with the implications of American business prospects for our economy here I regard the problems arising out of our own balance of payments situation as of minor importance from the investment angle, but we should obviously keep in mind the likelihood of some further pruning of domestic consumption. Unless Mr. Butler decides to use the Bank Rate once again in his efforts to achieve his aims I doubt whether the present reaction in markets will go very far. Yields are on a reasonable level for long-term investors.
Distillers Dividend When the Distillers Company made its much-discussed and very successful issue of £10,000,000 of 5 per cent. convertible loan stock in May the directors forecast a further rise in earnings. This estimate is now amply fulfilled in a rise in consolidated trading and manufacturing profits from £17,900,000 to £21,300,000. Such a sharp increase is doubt- less attributable partly to inflation, but in the main it must reflect further benefits accruing from the group's policy of steady expansion. With its interests extending far beyond the whisky trade into chemicals, plastics- and shipping, the Distillers group has shown itself an alert and progressive undertaking. Some shareholders may be disappointed, in the light of the gross profit figures, that there is no increase in the dividend, which, after being raised a year ago, is now maintained at 221 per cent. Part of the explanation is in the heavy provision for taxation, which has absorbed practically the whole of the additional gross earnings. The Excess Profits Levy charge of £257,883 is also a warning that in a full year the group's liability under this head is likely to be substantial. Another point which may have weighed with the board in reaching their dividend decision is that the ordinary capital may well be materially enlarged over the next year or two by conversions of the new loan stock, but it is also true that to make the conversions attractive an increase in the dividend will be required. Some mild dis- appointment with the dividend decision has found expression in the market in a fall in the 4s. ordinary units from 18s. to 17s. 3d. At this level the yield is 51 per cent.— a reasonable return on the equity of a sound and growing company.
Amalgamated Press Progress Remarkably good results have come from Amalgamated Press. In face of a /further steep rise in costs this well-managed pub- lishing group has somehow or other suc- ceeded in increasing its trading profits for the year to March 31st from £4,730,640 to a new record of £5,071,776. Against one big element in increased costs—the sharp rise in the price of paper—the group was cushioned by its investment in Imperial Paper Mills, but, as Lord Camrose points. out in his annual statement, the group stands to benefit on balance by a pruning of paper costs, since publishing, as distinct from paper-making, is " far and away " the largest section of the business. Once again the Exchequer has taken a heavy toll of the gross profits. Provision for income tax is up from £1,710,990 to £1,955,521, Profits Tax takes another £814,960, against £695,003, and £45,000 is set aside for Excess Profits Levy to cover the estimated liability from January to March. The result is to leave only a trifling increase in net earnings, but 'ordinary stockholders are rightly given a modest participation in the company's progress in the shape of a rise in dividend from the equivalent of 181 per cent, to 20 per cent. on the capital as enlarged by a 1 for 3 scrip bonus. This 20 per cent. is covered by a large margin and it is also worth noticing that although two free bonuses have been distributed in the past four years the reserves are still several times the issued ordinary capital. All in all, a strong posi- tion. Since the announcement of the latest results Amalgamated Press 10s. ordinaries have moved up several shillings. to 25s. 9d., at which they yield just under 8 per cent. Although competition in the magazine business is likely to get keener, I regard these shares as a good holding.
Rolls Royce Results Investors who are drawn towards shares with a strong rearmament flavour should study the latest accounts of Rolls Royce. The first effects of an increasing volume of defence orders are shown in a fresh jump in stocks and work in progress of £1,000,000 to the formidable total of £4,276,000 and the report also discloses that last year the group spent over £1,350,000 in expanding its fixed assets. Although the Government itself is providing certain additional plant and facilities, they make little contribution to last year's results and the chairman, Lord Hives, emphasises that it is unlikely that this work will be substantially reflected in earn- ings before next year. Meantime, however, the group's turnover is steadily expanding, and last year's rise in trading profits from £1,575,120 to £2,210,943 was based on larger turnover and the benefits of the use of more up-to-date plant. Following the distribution of a 100 per cent. capital bonus last July, the company is paying 15 per cent. on the doubled capital, which represents a slight increase on the previous rate of 25 per cent. Rolls Royce £1 ordinary units have latterly been a firm market, and at 58s. are now priced to give a return of a little over 5 per cent. The shares are a first-class equity but the possibility—to put it no higher than that —of a further issue of shares for cash to replenish working capital should be kept in mind.
A New Issue Breaking a longish spell of inactivity in offers for sale of ordinary shares to the public, this week's issue of 500,000 ordinary £1 shares in George G. Sandeman, the old- established wine business, has some interest- ing features. First, the assets position is strong. At the end of last year net current assets, which naturally consist largely of stocks of matured or maturing port and sherry, were £1,869,000. Total net assets, excluding the valuable goodwill, amounted to £2,248,000, or about £700,000 more than the capitalisation of the business in the offer for sale. As for earrtings, the company has a good record over the past ten years, but the directors do not expect this year's profits to equal the high figures for 1951. Even so, however, the estimated profit of £275,000 would cover the proposed 9 per , cent. dividend over twice. The offer of ordinary shares at 22s. 6d.,lo yield 8 per cent., should command a good response even in to-day's market conditions, and if the shares can be bought in the market within a few pence of this level they should be worth picking up.
Shares for Recovery Having dealt in some detail in these notes . with the affairs of Henry C. Stephens, the ink, carbon paper and typewriter ribbon manu- facturers, I feel that a comment is called for on the full report now issued for 1951. The chairman's review is a refreshingly frank survey of the position and prospects. Last year's improvement in trading results from £10,145 to £61,224 he shows to have been derived from better sales in some sections of the business. He also outlines plans for the future which hold out the promise of a further increase in revenue this year. On the assets side there has been a good deal of clearing up in the overseas field and the sale of the company's faclory in India has helped the financial position. What also emerges quite plainly from the chairman's review is that the rehabilitation of the company is a task which is going to take time and that while it 'is being accomplished the board's policy will be to plough back all available net earnings into the business. With that decision shareholders will not quarrel, but they will have to exercise patience. At present H. C. Stephens £1.7 per cent. cumulative preference shares, in arrears of dividend since the end of 1950, are quoted around 12s. 9d. The £1 ordinaries stand at 5s. 3d. I think both shares have attractions as speculations on the company's gradual recovery.
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