REMOVAL OF SUBSIDIES

Otago Daily Times, Issue 27388, 13 May 1950, Page 3

REMOVAL OF SUBSIDIES

By Gregory

Temporary Lull Occasioned In Trading

INVESTMENT MARKET

There appeared to be no justification on either Monday or Tuesday for attributing the sudden lull in trading to the Prime Minister’s abrupt repudiation-of subsidies at the week-end, but from mid-week onward there was no justification to think otherwise. Mr Mits (the man-in-the-street) is the broker’s best client. His ideas are the ideas that make markets, his optimism makes booms, his hesitancy compels lulls; and Mr Mits, regardless of his political persuasion, thought the arch-enemy should have been despatched by dismembering and not decapitation with the headman’s axe. The sudden break to trading was deceptive in that quotations were no whit changed from the previous week and there were many cases of price rises, but somehow or other the edge was off the market’s appetite. Northern markets recovered their aplomb after two or three days, and there was evidence yesterday that Dunedin was doing likewise. Gas shares held their price, investors being confident that extra coal costs would be passed on and coal shares were harder to buy. New Zealand Refrigerating boldly advanced to 40s, and the “ little ones,” which have provided an opportunity in recent weeks that we have not hesitated to point out, took courage and looked likely to go higher. Fletcher Holdings moved strongly to a new level, South British recovered their cum dividend level of 97s 6d. National Mortgage, Dalgety and Wright, Stephenson all saw higher levels. Chain store issues (except Macduffs and Woolworth New Zealand) had more heart.

The kicking away of the prop from under subsidies had wide without serious repercussions for the market, and the prospect that a further raking over of the artificial props vve have come to mistake for foundation pillars may follow has to be considered. When the exchange rate with sterling was altered by the former Minister of Finance it was an act of political expediency calculated to lower the cost of living (at whatever cost) at a time when an election was looming, and as such may not stand up to the close scrutiny of a new Government pledged to reforms, painful as they may be in their first onslaught. If one changes one's mind about ascending the notorious Skippers Road in a makeshift jallopy one may have to ascend higher to find a turning point before the retreat can commence, and the new Government is courageously boosting the cost of living with the precise purpose of eventually reducing it. Saccharine and Saline Patiently awaited during the past four or five months, the Colonial Sugar issue when it came was saccharine unexpectedly spiced with saline seasoning. The Sydney market wavered and fell after publication of the details. Small holders in particular displayed disappointment and in the course of the first day 23 sales comprising 116 shares were made at progressively easing rates. Neither the Australian or New Zealand markets had been confident of a bonus issue, but on the other hand there had been no precedent in

108 years to suggest a premium on a Colonial Sugar new issue. Broken Hill Proprietary, A.C.1., British Tobacco and many other outstanding industrial enterprises could ask shareholders for a token premium but Colonial Sugar had always dispensed pure candy. We would hesitate to suggest that local investors should display disappointment to the point of selling and would prefer to think that the £819,000 coming in by wav of premiums on the new issue is an eventual bonus share nucleus and worth waiting for because it would certainly be augmented by internal resources and may prove a worthwhile Issue. If there was any merit in our suggestion last week that the share portfolio of the Australian Foundation Investment Company should be extended to embrace a sprinkling of New Zealand shares we take this opportunity to amplyfy those remarks and to throw out the suggestion that the forthcoming new issue be utilised to the extent of allowing New Zealand holders—as they must number some one in 200—to take up their quota in local currency with a view to the company investing that proportion in Dominion securities. We set forth our ireasons at some length last week and the fact remains that if no encouragement is given local holders in the matter of currency the usual procession of rights will be sold to Commonwealth markets, thereby weakening New Zealand’s interest in this worthwhile Australian investment company. The Gadsden Prospectus The prospectus of J. Gadsden (NZ), Ltd., was in circulation yesterday, and by reason of being the first in the field iri 1950 claimed more than passing attention. One feature which appeals to prospective investors and a feature which was also a characteristic of such recent flotations as Henry Berry, Ltd., Associated Leathers, and A. S. Paterson. Ltd., Is that the company i» a going concern .—a private company changing to public status bv inviting the public to participate. In the case of Henry Berry, Ltd., and Associated Leathers, the reason foi relinquishing a profitable investment to common ownership was explained, but the ” Foreword ” to the Gadsden prospectus provides the only reference to this allimportant aspect and then only to tne extent of stating that “the prestnl proposals follow a decision to change the status of the New Zealand company from a family concern and admit outside investors as shareholders.” Just what prompted the " decision ” would have been far more interesting than the obvious recital which concludes the loreword but it is left to the prospective investor to arrive at his own conclusion as to what tempted the sale of the gold brick.

The capital of the company .being sold is £40,000; the new company will have a capital of £400.000. of which £275,000 will be issued, and as to cash £225,000 and shares £50,000 passed over to satisfying the purchase »price. However, for this consideration the new company gels a flourishing business utilising assets valued at some £372.000, but also some liabilities such as a loan from the Australian parent of £78.617, a total of £27.602 in bank overdrafts, and a brokerage bill looming up which, combined with capital, account (near enough) for the value of the assets. Looking to revenue and comparing it on the basis of the old and new, it will be found that whereas last veal’s profit of £28.823 was a whacking 72 per cent, to the old company's capital, it is a moderate 10.5 per cent, to the new, but as • £125.000 of the new capital is offered as 5 per cent, preference scrip, with a limited call on profits, the ordinary capital would be well covered as to dividend potentiality if profits were fully maintained. There is an extraordinary similarity between the 1948 and the 1949 profits, the more to be remarked because of their disparity with the 1947 year, which produced a small net of £10.245, against some £28,000 in the last two periods. We would like to have seen an explanation of this slump in profit (1947) or spurt, to profit (1948-49) whichever it is, the better to interpret the basic earning ability of the proposition, apart from exceptional fluctuations one way or the other. Perhaps a critic tends to criticise, but all in all prospective investors will seek out rnanv other pros and cons and a successful flotation should be assured Local interest is heightened by the fact that the well-known tinsmiths and canis-ter-makers F. J. Lake and Co., were absorbed into the Gadsden group a few years ago. Members of the Stock Exchange have supplies of the prospectus and are handling applications without charge.