FINANCE AND INVESTMENT
By CUSTOS
MARKETS are rounding off an eventful year on a note, if not of despondency, certainly of great restraint. Now that prices have fallen so severely the pressure to sell has diminished, but it is bard to see how there can be much enthusiasm on the buying side just yet. Mr. Churchill's broadcast has given Investors another sharp reminder of the con- tinuing uncertainties of the financial outlook, and his warning of further unpleasant pro- posals to combat the economic situation obviously puts a new and powerful restraint on fresh buying. While I am not advising a policy of going 100 per cent, liquid, it seems to me clear enough that there is no basis in the present position or the near-term outlook for any sustained rise in market prices. This applies to gilt-edged stocks and to industrial equity shares. Tke emphasis will be on what may be termed "special situations," such as shipping shares with take-over chances, liquidation shares and the like. In short, capital appreciation, which so many investors are seeking, will not be so easily come by in 1952 as this year.
Hawker-Siddeley Strength In the rearmament group Hawker-Siddeley can now fairly claim to have built up a position of exceptional financial strength. The latest figures reflect quite strikingly this group's expanding turnover both in quantity and value, even though much higher figures— could have been attained with an adequate flow of essential materials. Consolidated trading profits, together with investment income, have increased by £1,696,343 to £6,500,968. After taxation and depreciation charges, both of which have called for sub- stantially more than a year ago, are allowed for, net profit is up by £306,864 to £1,910,401. An adjustment of the previous year's profits, less tax, has raised the total from £2,109,847 to £2,606,062. Against the background of these results the board's decision to pay 10 per cent, on the Ordinary capital as enlarged by the scrip bonus repre- sents a cautious distribution of available net profits. This dividend is now covered about eight times over, and there can be little doubt that earnings prospects over the next few years are good. The consolidated balance- sheet discloses a further strengthening of the position, with total assets over £6,500,000 up at a new record of £40,862,548. In contrast with most of our large industrial under- takings the Hawker-Siddeley group reports an improvement in its cash position and at the same time the repayment of a bank overdraft. Following the issue of the report and accounts the £1 shares have improved slightly to 36s. 41d. At this level they offer the very reasonable return of 5+ per cent. They are a good industrial holding.
Standard Motor Outlook In the general market setback the 5s. Ordinary shares of the Standard Motor Company have fallen along with most other leading motor shares. Whereas five weeks igo they were quoted around 9s. they now 'stand at 8s. lfd., offering a yield on a_ well- covered 12 per cent. dividend of over 71 per cent. This does not look an unreasonable basis in the light of the picture of the current position and the trading outlook presented at the annual meeting. On the financial side the chairman, MP. C. J. Band, was able to review the group's liquid resources and its asset values in encouraging terms. The board's dividend policy, he explained, had always been conservative and large amounts had been ploughed back over the years into a growing business. Appropriately, he put in a strong plea for more rational industrial taxation. Reviewing the group's trading progress Sir John Black, the Standard Motor deputy-chairrtian and managing director, disclosed a fact, which doubtless came as a surprise to many of the company's share- holders, that the manufacture of the Ferguson tractor had now become the larger part of the group's total business. He also made it plain that while on the motor side difficulties are now being encountered in the export field, the overseas demand for tractors remains strong. Sir John Also referred to the contract which the company has received to manufacture the Rolls-Royce " Avon " turbo-jet engine. This development• has made it necessary for Standard Motor to undertake a large new factory building programme. The group appears to have ample liquid resources for the present.
Wiluna Forecast
My estimate made on November 30 that shareholders in the Wiluna Gold Corpora- tion might reasonably expect approximately 14s. a share in the coming liquidation of the company was officially confirmed by the chairman at last week's meeting. Mr. R. Ellerton Binns disclosed that the Australian subsidiary should be able to transfer approximately £1,323,000 (Australian) when its affairs have been completely wound up. That, at the current exchange rate, would give £1,060,000 in sterling to the parent com- pany here. He then added in another £21,000 to cover the assets of the parent concern, giving a grand total of £1,081,000 available on the £1,559,012 of Ordinary capital. This indicates a pay-out of 13s. 10d. on the £1 shares. How long will share- holders have to wait? Mr. Binns indicated that there should be no trouble in remitting the money from the Australian subsidiary fo this side, but he also pointed out that company had not yet sold all its investments, which now consist of short-dated Australian Government bonds. Presumably, it has been to the advantage of the shareholders to con- tinue to draw the interest on these bonds while the -liquidation process has been going on. Mr. Binns forecasts that there should be an early payment of 6s. a share and that the final pay-out should not be unduly delayed. With the shares quoted in the market around 13s. it seems to me that shareholders should await the liquidation payments. No mention was made at the meeting of any deduction to cover compen- sation either to the board or the staff.
Primitiva Problems Much less happily placed among liquida- tion companies is Primitiva Holdings, whose
£1 shares were analysed in these notes on November 9. Now comes the news that the Argentine Government has refused to hear the company's appeal against the judgement in the Argentine Courts recently given in tfavour of the municipality against the Primitiva Gas Company, the important operating subsidiary. This means that the municipality's claim for alleged Excess Profits Tax liabilities still stands valid at the formidable figure of 26 million pesos. For- tunately, the matter sloes not end there, since the company is now' prepared to fight its case on the basis of contract law. - What does seem 'apparent, however, is that the path towards a satisfactory settlement of the company's affairs in Argentina is still strewn with legal problems, many of which will take a long time to solve. From Argentina's recent actions in relation to other British- owned companies one can only draw the conclusion that there is little willingness to pay fair compensation, an attitude which may well be dictated 'in part by Argentina's known shortage of sterling. Meantime, the Primitiva Gas Company's case for fair com- pensation is steadily proceeding, but it is hard to estimate whether there will be a balance to be paid to the company if no redress is found for what appears to be t n extraordinarily large claim for Excess Profits Tax. The- net assets of Primitiva Holdings in London can be conservatively estimated at I ls. on the £1 shares. This explains why, in spite of legal setbacks in Argentina, the shares have remained comparatively steady around 7s. 3d. Although holders will have to exercise a good deal more patience, I stilt think they are justified in awaiting the final outcome.
• John Brown Yield In the market setback of the past few weeks the £1 Ordinary units of John Brown, the shipbuilders and engineers, have fallen from 51s. 9d. to 44s. 3d. This movement represents in part an adjustment to the new basis of yields, but it has also been influenced by the liquidation of speculative positions built up in the shares just before the election. At the present level, at which the shares are offering the useful yield of nearly 6+ per cent., less tax, on the 7-1 per cent, tax free dividend rate, investors have a good oppor- tunity of picking up a sound industrial equity on attractive terms. The last balance- sheet showed a position of great financial strength following the receipt of the com- pensation money for the nationalised steel interests of the group. At March 31 cash and Government stocks alone amounted to over £7 million, a liquid position which will be still further strengthened by the receipt of compensation money for the group's collieries in the near future. As I have pre- viously emphasised, John Brown's interests extend far beyond the famous Clydebank shipbuilding yards. The group manufactures machine tools and it is interested in railway plant manufacture through -Craven's gait- way Carriage and Wagon. It also has an interest in the making of oil-refinery plant and has inyestments in the electro-chemical field in Southern Rhodesia. Altogether, these interests combine to give John Brown Ordinary shares the character of a pro- gressive equity.
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