The behaviour of the market during the pest week confirmed its underlying strength. With a rising volume on the upswing, the market is still showing the disadvantage of holding cash to stocks, with appreciation of industrials in a month by 5% per cent.
Business indices are still close to peak levels without any over-accumulation of inventories in the textile, oil, steel, automobile and merchandising fieldg-Commodity prices are starting the year at levels which are 4 per cent. below those of a year ago.
Interest centres in the Presidential message to Congress tomorrow, as, if it is unaggressive and lacking in new reform requests, business sentiment will be greatly heartened. The main Congressional tasks have a definite tion, continuance of broad agricul-ural relief, continuance of emergency relief, defense expenditures, probable defeat of the Patmen anti-chain store measure and a more kindly attitude towards utilities. r-shock in the middle of this year, when the board of De Beers announced that pa; ut of the half-yearly Preference dividend would be postponed in order to preserve the company's cash resources, Experience in recent years indicates that every change of £1,000,000 in the sales of the Diamond Trading Company affects the diamond account of De Beers by approximately £900,000. In 1937, the total of that account was £2,536,600. It world sales decline this year by about £4,500,000. the account may be reduced to slightly less than £1,200,- 000. The company's expenses are covered by its income from other sources, and a full year's distribution on the 40 per cent. "Preference shares requires £800,000. Thus De Beers should earn its full 1938 Preference dividend, in spite of reduced diamond sales, Whether the dividend will be paid, of course, is entirely a matter of policy. Naturally, a strong and liquid financial position is highly valuable in a period when the market is depressed but even if the Preference dividend were paid, the.company would still have large liquid resources. Moreover, there are reasonable prospects of an improvement in world demand next veer if international political tension does mot increase, Thus, the board may conceivable decide to pay the full Preference dividend, but it is unlikely that the Deferred shares will receive a distribution this year. Last year their earnings, after deduction of one year's Preference dividend, were equivalent to as much as 54.1 per cent. and this year's figure may well be over 10 per cent. It would not be surprising, however, if the company were to retain these profits pending an improvement in world diamond sales.
The position of Consolidated Diamond Mines of South West Africa does not differ greatly from that of De Beers. This company also has deferred the payment of its Preference dividend for the first half of 1928. A full dividend on the 7% per cent. Preference shares requires £168,000, and last year the company earned £440,324. Even if this yea: total were halved. it would still cover the Preference dividend and leo: a surplus of 2 to 2% per cent. rin the Ordinary capital. The Or?inary shares, which received 10 per cent last year, the first distribution since 1929, may fall temporarily out of the dividend list again this year, The Preferred shares, however, have a reasonable prospect of receiving their full dividend unless the board takes a conservative view of the diamond outlook and conserves its earnings against possible future contingencies.
Among the other diamond-producing companies, the Consolidated African Selection Trust appears to be in a relatively strong position. This company, which benefits direct from the secular upward trend of demand for industrial diamonds, paid satisfactory dividends throughout the last slump. It certainly should not disappoint its shareholders in future. Recently the company has reduced its production costs. Although output has been reduced recently, both on the Gold Coast and in Sierra Leone, production costs are still remarkably low. As Mr. Chester A. Beatty, the chairman, pointed out at the recent annual meeting, the company's business has now greater potential earning capacity than at any time in its history. Nevertheless the earnings in the year ended June 30 last felt the effect of the setback in the diamond market and dropped from £440293 to £278,618. Since the end of the company's financial year the market has been slightly firmer, and recovery may well make headway early next year, despite the new reaction of the last few weeks. It is still early, however, to express any decided view on C.AS.T/s earnings Tospects in 1938-39 But there is a reasonable chance of an improvement on the last results, which, apart from the first quarter, covered the weakest period of demand for diamonds since the last slump, Considering the impórtance of the volume of tax-selling akd year end liquidation, the ynobtri strength of the market and quality of the buying induces the belief that dormant speculative buying may be re-*|leased by some single event or chain of events, 63 Threadneedle Street, London Far Eastern
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