COMPANY NOTES
By CUSTOS
ALL black things considered, the Stock Exchange might have behaved worse. It was no doubt helped by some bear covering on Tuesday, the last day of the Account, but selling has never been heavy and the volume of business is two-thirds of the normal. What has depressed everything is the weight of new issues falling upon a market suffering from the money squeeze. 1 will not mention the new Exchequer 5 per cent. which the Treasury is holding at par to hide its disgrace : I refer to the £22 million for Associated Electrical, £13-1- million for Gallaher Tobacco and this week VII- million for Rolls-Royce, which have combined to depress the industrial share markets. Gallaher had to offer a 6 per cent. coupon for its £8 million unsecured loan stock, but most companies prefer to water their equity stock with 'rights' issues. In a hear market the coming of a rights issue puts a share down often to the issue price.
This virtually happened in the case of ASSOCIATED ELECTRICAL INDUSTRIES, which issued one-in-four at 57s. 6d. The old shares touched 96s. 9d. last year, so that this represents a fall of 40 per cent. It usually pays to pick up a 'blue chip' equity of this calibre after such a steep fall, especially when the dividend yield is as high as 5.15 per cent. GALLAHER 10s. shares were as high as 40s. 6d. last year. The new shares (which will be subdivided into 10s. shares later) are 18s. premium, nil paid. The dividend has been forecast at 17-1 per cent. and even if no increase in trading profits is forthcoming this should be covered by earnings 1.6 times. The prospective yield is therefore 9.2 per cent. A fall of over 50 per cent. in a tobacco share of this standing surely presents a buying opportunity. ROLLS-ROYCE has not had to give so much away as Gallaher or AEI. It is issuing one-for-six at 77s. 6d., and the old shares have come down to 89S. from a peak of 132s. 6d. last year. The directors forecast that it should be possible to repeat for 1956 the 171 per cent. dividend they are paying for 1955. This means that they are raising their new equity money on a 41 per cent. basis against 5.15 per cent. for AEI.
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