FINANCE AND INVESTMENT By CUSTOS MEASURED by the number of
markings, Monday was the busiest day in the Stock Exchange since February 25th, 1952. Indus- trials and gold shares were the most active groups ; but most of the dealings in gold shares were in mines with uranium prospects, actual or potential. Since I wrote last week the Financial Times share-index for develop- ing gold mines has risen 2 per cent. further to 90.66. Most of the developing mines are in the Orange Free State ; seven of these are scheduled as uranium producers ; and further mines in this field are likely to be scheduled in due course. The profits of £124,707 from uranium for the last quarter of 1952 announced not long ago by West Rand Consolidated show clearly the sub- stantial contribution that uranium will make to the earnings of the favoured producers, particularly those whose profits from gold mining are marginal. With fifteen South African mines already scheduled to produce uranium and others likely to be added before long, it is hardly surprising that uranium has proved to be a greater magnet for the speculative investor than the hypo- thetical prospect of a rise in the U.S. price of gold. In spite of profit-taking and some hesitancy, industrials have been steady to firm, and gilt-edged were helped a little by the lower estimates of the Government's Civil Expenditure for 1953-54. These estimates are capable of both favourable and unfavourable interpretations, and the Chancellor could find seeming justification for either a. soft or a stern Budget. If he chooses the latter course, industrial shares, which seem to have ignored the 10 per cent. rise in coal prices, may shed some of their recent exuberance ; but the odds seem to favour some tax concessions to industry. My own preference would be for an increase in depreciation allowances to facilitate plant replacement. This form of relief would have the merit of showing profits in a more realistic light. A great deal of harm has been done by the publication of industrial profits purporting to show a large increase, whereas the " true '9 profits are seen to be very much lower when correction is made for the element of stock appreciation and adequate provision is allowed for plant replacement.
English Electric Position The expansion of its normal work, which covers a vast range of electrical manufac- turing activity, and the increasing require- ments of the defence programme are reflected in the latest balance-sheet of the English Electric group, which shows a rise in stock and work in progress from £34,774,543 to a record of £46,233,232. For the year to December 27th, 1952, the group's trading profit is moderately higher at £5,948,403, against £4,762,088, but tax has taken a heavy toll, with E.P.L. calling for £505,500. Consolidated net profit after tax, depreciation, etc., is only slightly higher at £1,449,518, against £1,355,530. Even so, the Ordinary dividend is comfortably main- tained at 15 per cent., the allocation to general reserve is raised from £550,000 to £600,000, and the carry-forward is £57,600 up at £534,743. Ordinary stockholders might well have expected a modest increase in dividend if it were not for the obvious need to conserve resources. Flanking the sharp rise in stock and work in progress the group's bank overdraft has risen from £5,861,474 to £9,389,380 despite the receipt early in 1952 of £3,200,000 from the "rights" issue of new Ordinary shares and of the £500,000 balance of the Debenture issue. Although it is believed that no fresh financing is contemplated for the early future, I shall be surprised if steps are not taken to reduce bank loans .before very long. Meantime, at 58s. English Electric £1 Ordinary units, yielding almost 51 per cent., seem to me 'to be fairly priced. The group has a progressive record and good management, but investors might postpone buying the Ordinaries until the terms of any new financing are announced.
Harrods Surprise After the depressing reports current, in the City last year of a sharp falling-off in West End shopping, the latest results of Harrods covering the year to January 31st, 1953, must be judged surprisingly good. Net profit, before taxation, of Harrods and its subsidiaries has risen from £1,349,816 to £1,419,591. After tax net profit is up from £470,829 to £550,721. On the strength of these satisfactory figures Sir Richard Bur- bidge and his co-directors are making a slight increase in the Ordinary dividend by paying 131 per cent. on an Ordinary capital which has been increased by a 50 per cent. scrip bonus. The precise equivalent of the previous year's 20 per cent. rate would have been 131 per cent. When one recalls the plain warning about " difficult trading conditions " given by the board last June, when- the free bonus shares were issued, it is clear that the Harrods group had its full share in the subsequent autumn recovery. The £1 Ordinary units, which were quoted under 28s. at one time last year, have rallied to 37s. 3d. They are now priced to yield approximately 7 per cent. on a well covered dividend. I regard them as a sound holding.
Food Shares Provision store shares are now at about their highest prices since the beginning of 1952—apparently in the hope of benefits to - come from the de-rationing of certain foods and a possible cut in subsidies. The effect of such changes, however, might be two- edged ; for while de-rationing would stimu- late demand for some foods, the consumption of others might suffer if the removal of subsidies led to higher prices. A rise in prices would also call for larger resources to finance stocks. In spite of these prob- lems, it seems reasonable to suppose that further cuts in subsidies would lead to an increase in turnover ;- and since the earn- ings cover for dividends on the leading provision store shares is substantial, the risk of any reduction in dividends seems slight. The largest group in this field is Home & Colonial, whose 4s. shares are obtainable around 7s. to yield 6.86 per cent. on the 12 per cent. dividend paid for 1950 and 1951. An issue of new shares—one for two at 5s.—was made last year, but the 12 per cent. dividend seems safe enough, since _ 43.4 per cent. was earned on the shares in - 1951. Net assets—excluding goodwill and taking the 15 per cent. Preference and Preferred shares at market value—exceed I Is. a share, which is undoubtedly well below their " true " value. A smaller firm of grocers and provision merchants with a healthy record is Cullens Stores, whose 4s. Ordinary shares are now around 18s. 6d. to yield 8.1 per cent. on the dividend of 371 per cent. paid for each of the past two years. Last year's payment came out of earnings of 82 per cent. Cullens have about 140 retail shops in London and the Home Counties.
A Worsted Equity In spite of good reports from the West Riding, Standeven & Co. ls. Ordinary shares have slipped back a few pence recently.
This company manufactures fine worsted fancy suitings for home and export, and with its subsidiary carries out all the processes of dyeing, recombing, spinning, weaving and finishing. Annual dividends over the past seven years having ranged between 30 and 35 per cent., while earnings over the same period have fluctuated between 43.3 and 143.2 per cent. Profits for the year to March 31st, 1952, reflected the sharp drop in wool values and consumer resistance; but the 321 per cent. distribution was covered by earnings of 58.7 per cent. In his review last September the chairman referred to " very keen " competition, but added that the machinery had been kept fully employed, and that orders in hand would " keep us running for some months ahead." Since then the company should have shared in the improvement in the industry. This assump- tion seems to be endorsed by the mainten- ance of the interim dividend a few weeks ago at 10 per cent. If the total payment is again 321 per cent., the shares, now around 3s. 71d., will yield nearly 9 per cent. The shares have a net asset value (taking the fixed assets at their heavily written-down value) of 4s. 2d. a share. One interesting item in the balance-sheet is a reserve of £225,000 against fluctuations in raw materali prices. This represents ls. 6d. a share ; and some shareholders are hoping that part of it at least may now be released for dis- tribution. I feel some doubt about this, since the last balance-sheet revealed a shortage of cash ; but the shares seem attractive without any special disbursement.
Strathmore Considerations of space caused some tele- scoping.of my note on Strathmore Consoli- dated 5s. shares last week. As I mentioned, this company has a 30 per cent. interest in the Ellaton Gold Mining Co. Ellaton's last development report showed that the Vaal Reef had been intersected in the main shaft at 770 feet, the average value being 21 dwt. over 32.7 inches. This rich ore at a shallow depth points to the likelihood of a high revenue and low working costs per ton. If the high values are confirmed by future developments, Ellaton should be a highly profitable mine. Sir Ernest Oppenheimer's Anglo-American Corporation clearly sets great store on the prospects of this mine, for it has lent £2,500,000 to Ellaton and holds a 25 per cent. interest in the share capital. With regard to uranium possibili- ties, it is now thought that Ellaton's " slimes " (the residue after the gold is extracted) will be piped to the uranium plant of Stilfontein, in which Strathmore has a very substantial interest. Rather more than 50 per cent. of Strathmore shares, I inkier- stand, are held by Col. Jack Scott, the head of the New Pioneer group. The shares of this group have lately been active at rising prices, but Strathmore are unchanged on the week around 35s. 3d.
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