FINANCE AND INVESTMENT
To the tenacious investor who has clung to his holdings through 17 months of stormy investment markets Sir William Beveridge's remark that we are now " entering a new depres- sion " is not reassuring. Nor, it must be confessed, do the current British business figures give the optimists much ground for encouragement. High points of the past week have been the Cables traffic index with the lowest monthly figure since August, 1931, partly due, of course, to the reduc- tion in charges made this year, a further drop in the level of shipping freights, an unfavourable reply from General Franco, and a French Cabinet crisis. Thus it has happened that with the opening of the new Stock Exchange Account those who still have confidence in an autumn business rally have kept their confidence to themselves, while those who anticipate an autumn set-back have taken immediate action to support their views. Those sections of the market which have been made vulnerable by current figures, for instance, Cables and Wireless and railway stocks, have been sold partly on bear account. Only in gilt-edged stocks has there been sustained steadiness.
Wall Street once again is the main, if not the only, support for the optimists, but withal a remarkably solid support. It remains almost aggressively firm, deriving some encourage- ment from the increased U.S. steel activity and the increasing consumption of rubber. Within a month's or six weeks' time this firmness will have been put to the test, for the effects of Governmental expenditure on American industry should then be showing themselves. If Wall Street should prove right there is no doubt that it can carry London with it. Till then the investor can well afford to wait.
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TRIPLEX RESULTS
It has been urged by several leading industrialists that 1937 was an altogether abnormal year with no place in the steady sequence of the trade cycle. If you want to make a fair estimate of what a company should be able to do in a better-than-average year look at its 1936 figures, they say. And this is also the answer of the directors of Triplex Safety Glass to those who are wondering why the dividend was reduced from 35 per cent. to 25 per cent. and why the net profit for the year ended June 3oth fell from £234,732 to £166,511. Ignore 1937, they say, and recognise that the figures still show an advance on 1936, as indeed they do. This year's net profit is £19,420 above the 1936 figure. Moreover, the year's dividend of 25 per cent. on a capital of £500,000 represents the distribution of £5,000 more than did 6o per cent. on the capital of £200,000 which ranked for dividend in 1936. It seems a reasonable argument even though it leaves us guessing where 1939 falls into the sequence —will it be another 1935 or another 1936 plus ? Also the company seems to have maintained its position well in view of the set-back in the automobile industry, which is one of the chief consumers of safety glass. The dividend is earned with a margin, the balance carried forward being increased by £21,965 to £34,308.
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DEBENHAMS DIVIDEND MAINTAINED
Since retail sales—in particular, West End sales—have shown a marked decline in recent months it is highly satis- factory to find the financial results of the important Deben- hams group standing up so well to the rough weather. The net profit of Debenhams for the year ended July 31st, after paying debenture interest, amounted to £555,112, a decline Of £25,642. The profit is still amply large enough to cover the ordinary dividend of 20. per share (equivalent to 20z. per cent.), and in addition to paying that dividend the company is transferring £50,000 to reserve, as in the previous year, and carrying forward £251,703 as against £229,758 brought in. There is some evidence to confirm the impression that the recession, such as it is, has occurred mainly m the most expensive end of the. business. The important subsidiary, Harvey Nichols and Company, shows a proportionately larger drop in profits ; net earnings are £43,590 lower at £87,975. The company after making its usual contributions to reserve has cut its ordinary dividend from To per cent. 10 7 per cent. This reduces the gross amount paid over to Debenhams as ordinary shareholders by £18,000 to £42,000 and accounts for most of the drop in Debenhams' own earnings.
Whenever one can make up one's mind trade is really on the mend and spending power rising, Debenhams is. ordinary shares will be one of the best mediums for taking advantage of it. They are a classical example of a highly geared equity. Only £500,000 of ordinary capital ranks after over £8,5oo,000 of debenture and preference capital. Thus quite small changes in the turnover or profit margin of this £9,000,000 company mean quite big changes in the dividend which could be paid on the small ordinary capital. I do not feel sure that we can yet rely on a sustained upward tendency in retail trade, and a highly geared share which gets the effect of any recovery magnified also has its recessions magnified. But Debenhams is. ordinary shares have a margin of safety. Standing at 2s. 7id. to 3s. iid. on the basis of the 2o?, per cent. dividend they yield about 7 per cent., and even on last year's reduced profit the company earned much more than it distributed..
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Venturers' Corner
Recession or no recession, a 14 per cent. earnings basis looks interesting, especially when the firm is temporarily at least reasonably well supplied with rearmament orders. William Beardmore's £1 ordinary shares in their new form offer that attraction, and I feel that those who must venture their money in these uncertain times are likely to lose as little of it there as anywhere else. When dealings started in the ordinary and preference shares in their present form at the beginning of the last Stock Exchange account, the 51 per cent. LI preference shares opened at at o at 15s., and the Li ordinary at about I25. 6d. The preference sham have held their ground but the ordinaries have since fallen to about los.
The fall of 2S. 6d. in the new ordinaries last account follows the not unjustified decline in iron and steel stocks in general, but it does make the shares worth looking at again. The drastic reconstruction scheme was worked out under the cautious chairmanship of Sir James Lithgow to enable the company to show 7 per cent. on its reconstructed ordinary shares at par. His speech to the shareholders showed that the dangers of the future had not escaped him, and one is left wondering whether the market is not making an excessive allowance for the admittedly substantial recession which has occurred in the engineering industry.
(Financial Notes on par: 352)
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