INVESTMENT NOTES
By CUSTOS
THE news from Africa and Russia has halted the recovery in equity shares, but selling was in no great volume and the falls in prices were not severe. Declines of this sort give an oppor- tunity to the investor to pick up newly issued shares, which tend to be unduly depressed at such a time. I have called attention before to METAL INDUSTRIES partly because of its excellent management, partly because its scrap metal business is flourishing and partly because it has diversified its business by entering the electrical industry through judicious acquisitions (the latest being Lancashire Dynamo). The company has issued one new share for every four at 54s. and the directors have forecast a dividend of 15 per cent. on the increased capital. The new shares can be bought at 12s. 3d. premium to return a yield of 4.6 per cent. The old shares have come back from 72s. 43d. to 66s. 3d. COAST LINES have issued two for five new shares at 20s. in order to raise money for expansion. This company has a road haulage business in addition to its coast- ing fleet, which should be fully occupied in view of the industrial boom across the Channel. It recently reported greatly increased profits, with equity earnings up from 30.9 per cent. to 48.8 per cent. Profits for the first three months of the current year are again showing an increase and
the new shares at 31s. yield 61 per cent. on the basis of the 10 per cent. dividend which the directors expect to maintain on the increased capital.
Gilt-Edged Switches
Rarely has there been such a good opportunity in the gilt-edged market to switch from long- dated or undated into short-to-medium-dated stocks. The 33 per cent. Funding 1999-2004 (commonly called 'eternities') is yielding £5 8s, 8d. per cent. at 643 as 14s. 5d. per cent. to gross redemption), while Conversion 5 per cent. 1971 at 91 is returning £5 9s. 10d. per cent. (£6 2s. 8d. per cent. to gross redemption). To exchange from a forty-four-year stock into an eleven-year stock and gain in yield is extra- ordinarily rare. Again, Gas 3 per cent. 1990-95 can be sold at 593 yielding 5.05 per cent. flat and £5 I4s. 3d. per cent. to gross redemption, and Electricity 43 per cent. 1967-69 bought at 893 to yield 5 per cent. flat and £5 18s. 6d. per cent. to gross redemption. From thirty-six years to nine years with a gain in yield is equally fantastic. The shorter the stock the more protected is the holder against temporary depreciation. If -the investor goes as short as Savings 21 per cent. 1964-67 at 823 or Funding 3 per cent. 1966-68 at 813 he is pretty certain to enjoy an annual appreciation. The inevitable capital profit of 173 and 183 points over the period works out at an average rise of 2.65 points a year, which is protection enough against any reasonable rise in prices. Even undated 33 per cent. War Loan or 33 per cent. Conversion with running yields of 5.85 per cent. and 5.9 per cent can be exchanged into short-to-medium-dated stocks with higher gross redemption yields. The Treasury has made these irredeemables look all the dearer by issuing the new short-53 per cent Treasury 1962 at 99-to yield about 6 per cent. to redemption.
Wool Textiles The boom in the wooi textile industry goes on; companies are still reporting full order books. For the year to April BULMER AND LUMB in- creased their profits by more than 70 per cent. and raised the dividend from 11 per cent. to 13+ per cent. This was covered 33 times by earnings. A one-for-four scrip bonus is proposed. At 8s. 9d. cum bonus the 4s. shares return 6.3 per cent., which seems generous seeing that the directors hope to maintain 11 .per cent. on the increased capital. However, it must be borne in mind that in 1958 the woollen trade was de- pressed and companies had to take heavy stock losses through the fall in wool prices. The safest way of investing in this industry is through ILLINGWORTH MORRIS, which has a ,holding in BULMER AND LUMB and recently acquired over 90 per cent. of SALTS SALTAIRE. These 4s. shares have come back to 12s. 9d. on some disappoint- ment in the market that the interim dividend was not increased. This doe, not mean that the final will not be increased. On the old dividend of 20 per cent. the yield is 6.2 per cent., but it is reason- able to expect a little more next time. The shares rose to 14s. 6d. on the last occasion of the final dividend and should better this price on the next.
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