COMPANY NOTES I By CUSTOS MY cautionary advice last week
has been more than justified by the present dismal performance of the stock markets. Although Mr. Butler himself issued a warning that the effects of the credit squeeze would become increasingly severe in coming months, the gilt-edged market had not apparently discounted the coming so soon of 5 per cent. coupons for Dominion loans. The Federation of Rhodesia and Nyasaland is issuing £10 million of 5 per cent. stock 1975-80 at 994. This promptly knocked other Dominion loans down by 14 and home corporation loans by 2. The last move was significant. The new discipline to which Mr. Butler has subjected the muni- cipalities means that the gilt-edged market will have to take care of issues which it , previously escaped. If the local council can borrow in the open market or the mortgage market it will now be forced to do so instead of borrowing from the Public Works Loan Board (whose loans are financed by the Government through Treasury bills), As the present PWLB rates are 5 per cent. for loans over five years it must be expected that future home corpora- tion loans will probably carry 5 per cent. coupons. This puts the gilt-edged market on a new interest basis. War Loan as I write is yielding £4 I3s. per cent. at 75:1 and it looks as if that price will not he held.
My suggestion that investors should fight shy of the motor industry until the effects of the higher puichase tax on the home trade can be gauged has been reinforced by the slight decline in the trading profits of Rooms for what should have been a boom year to July last and by the disappointing
profits and dividend of LUCAS. The BRITISH MOTOR CORPORATION accounts, which were excellent, also confirm me in my opinion that this company is the strongest in the British industry and the best able to stand up to increasing competition and the squeezing of profit margins. It is certainly ahead of its British rivals in production efficiency as a result of its recent rational- isation. Its trading profits in the year to July rose by 11 per cent. and its net profits by 43 per cent. I would therefore recom- mend investors who hold Rootes to ex- change into BMG and improve both yield and security. At 9s. 9d. the 5s. shares of BMC are yielding over 6 per cent. while the 4s. shares of Rootes at 6s. 6d. are yield- ing under 5 per cent. If both shares are held I suggest changing Rootes into BSA which is manufacturing small arms, bi- cycles and motor-cycles as well as motor- cars and buses, not to mention steel and aluminium forgings. At 37s. the shares yield nearly 54 per cent. on the increased divi- dend of 10 per cent. which was covered four times over by earnings in the year to July.
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For a high-yielding share this week which is not so vulnerable to the market squeeze I have picked Out GEORGE, W. KING. This company caters for the manufacturers, that is, it makes what we call producers' goods, such as conveyors, elevators and gantries. For the year ending December last it earned 324 per cent. and paid 124 per cent. and at 9s. 74d. its 5s. shares return a dividend yield of nearly 64 per cent. and an earnings yield of over 16 per cent. The shares have bails as high as 1 ls. 74d. this year.
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