Market report CUSTOS
Sir Peter Allen, chairman of Imperial Chemical Industries, really set the tone of the equity market at the company's annual meeting when he indicated that to sales should increase by £100 million this year. Assuming that this im- provement is carried through to profits (possibly an optimistic assumption) then the shares are selling at around fifteen times pros- pective earnings (sixteen and a half times those for 1968). Here, then is a yardstick by which others can be judged. If company x is selling at twenty times prospective earnings, do& the differential correspond with x's prospects in re- Idfion to ict's?—that is the kind of question which investors need to ask.
Gilt-edged securities continue to reel from a series of blows. The latest is the rise in the Aihbrican rediscount rate, which has reached the highest level for forty years. So British Bank rate stands at 8 per cent compared with 6. per cent two years ago and the American equivalent, the rediscount rate, stands at 6 per cent compared with 44 per cent (coming down to 4 per cent) at the same point. Companies now have to offer at least 91 per cent on debentures if they are to stand any chance of success and I fully expect to see 10 per cent debentures before long. The next event for the fixed interest.. market is, of course, the Budget. This could bring that much feared switch to a thorough- going control of the money supply, which would mean that the gilt-edged market would be left without a buyer of the last resort and prices would fall far and fast. The market's cynical expectation is that this nasty dose of medicine would be accompanied by a small sweetener in the shape of complete exemption from capital gains tax.
Rowntree's bid for Mackintosh puts General Foods, the big American company which wants to take over Rowntree itself, on the spot. General Foods must now make up its mind whether it wants to post a formal offer to shareholders and endure the battle which would undoubtedly follow, with the Rowntree trustees very unwilling to accept an American offer, or retire quietly from the scene. My guess is that General Foods will withdraw, for it does not welcome the public mud-slinging of an open battle for control.
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