10 APRIL 1964, Page 31

Investment Notes


IT will be a miracle if the equity share markets are able to hold their own in the face of the Greater London elections this week and the Budget next week. There may, of course, be pleasant surprises, but even without these Political upsets the markets have exceptionally heavy calls to meet on new issues. A firm of brokers who keep a new issue record point out that the calls due on ordinary shares over the next four accounts are the largest for any such period since they began this service in Novem- ber, 1962. The total due is no less than £45.6 million, which exceeds the previous highest figure by almost £20 million. However, the unit trusts continue to collect small savings and put them into the market-so far this year at the rate of about £8 million a month. This activity must also die down, over the next few weeks, although I see that Mr. Hodge's Welsh Dragon group is launching a new Educational Unit Trust in the week after the Budget. The small saver usually ignores outside events and he may yet save the market from any serious setback.

Wall Street

It is fortunate that Wall Street continues to forge ahead, giving the active investor a chance to employ his money to advantage. The first quarterly reports of most American companies should be excellent and the tax-cut Bill follows to give a further kick to company earnings, add- ing in effect some 3 per cent to 4 per cent. The Dow Jones index of industrial shares, now 824, has reached a level which is equivalent to twenty times average 1963 earnings. This is high, but 1 not too high for an expanding economy. Many \ leading British industrial shares are selling on 1 the same basis. However, there is now an up- I ward trend in American interest rates and this may act as a damper on the market if the Federal Reserve carries it further. Another possible bear POLnt is a break in the real estate market.1 read that recent land offers in Florida failed to secure bids high enough to cover the existing mortgages. Later in the year the market may run into trouble from this source, but it seems set fair for the !tme being. Investors should not come to any harm in shares like STANDARD OIL OF NEW JERSEY ($86i- on NY) to yield 34 per cept or SKELLY on. (the Getty group) at $74 NY to yield nearly 2.8 per cent. The investment dollar premium is at 104 per cent and if this is felt to be a stumbling block, the investor might feel better if he were to switch out of PHILIPS LAMP, which s"ms to have run into wage-cost and profit- margin trouble. Wages have just risen 14 per cent in Holland. The price of Philips Lamp in t -nnden takes account, of course, of the dollar Premium.

British Petroleum Th popularity of oil shares as an election-

group was n/ group was further enhanced by the report of BRITISH PETROLEUM, whose profits Were up 18 Per cent before tax and 17 per cent after tax en a rise in group sales of 7+ per cent. The in- crease in the dividend and one-for-five scrip bonus exceeded market expectations. The final d,,ividend is to be Is. 8d. tax free (including 4d. trom

capital reserve), payable on the capital as in- c reased by the bonus. Thus the total is equivalent

to 2s. 2+d. against Is. 114d. for 1962. If the .1964 rate can be assumed to be 2s. 4d., the divi- dend yield at 68s. would be nearly 7 per cent. All this is good for BURNIAH OIL, which holds

two and a half million shares. The market pushed Burmah up by 2s. 6d. to 71s. temporarily on the grounds that the dividend would be raised to 3s. against the forecast 2s. 9d. As the shares have fallen back to under 70s., this is a good opportunity to buy on a yield basis of over 6 t- per cent.

Insurance Shares

Trustees have suffered heavy losses on the in- surance shares, which in some trusts have been a major part of the portfolio. Since their high levels in April, 1962, the composite company shares have fallen by 37 per cent and the life by 26 per cent (having recovered recently by more than 10 per cent). The reason is the huge losses suffered by the composite companies in fire and frost damage, not to mention accident losses, and, in the case of the life companies, the fear of a Labour Government. Until the 1963 results are out I would not touch the composite companies, for they may be worse than the market expects. Many dividends will be un- covered, perhaps even in the case of GENERAL ACCIDENT. Only LONDON and NORTHERN AND EM- PLOYERS can be considered safe in dividend cover. When the worst is known there may be some recovery in the market, for it is believed that 1964 will see an improvement in earnings following on the increase in fire and motor premiums in the UK and in motor premiums in the US. The mild winter should also have helped. But the improvement may be slow, as Many companies are still making losses on their fire business. The life companies should, how- ever, continue to do well, and I regard LEGAL AND GENERAL as still the best purchase at 10 to yield 21 per cent. l was disappointed with the SUN LIFE triennial report, although the dividend was raised, as expected, from 16.6 per cent to 28 per cent tax free. This' rise of 68 per cent in the dividend does not look well compared with a rise'of only 38 per cent in the shareholders' portion of the divisible surplus. There can be no future rise in the dividend now for three years and at 77s. to yield 2.9 per cent the shares' seem

fully valued. '