COMPANY NOTES
By CUSTOS THE outstanding feature of the stock markets has been the slump in Government credit. This is not the usual way to describe a fall in gilt-edged stocks but it follows so directly upon Treasury action that it is fair to draw attention to the fact that 34 per cent. War Loan—the hall-mark of British credit in the foreigner's eye—has fallen to the lowest level in its history and is now quoted on a yield basis of £4.17s. per cent. The recent deterioration set in when the Treasury forced the local authorities to borrow in the market instead of tapping the Public Works Loan Board. Up to last week only two Corporations were able to borrow in the open capital market (a total of £9 million): the rest were forced into the mortgage market, which means borrowing from insurance companies on the mortgage of their income from rates. It is estimated that about £100 million was raised in this way in the last few months—so hard pressed were the local councils to find money. Rates moved up against the bor- rowers-54 per cent, being charged for short terms. As the insurance companies would normally have invested this £100 mil- lion in Government stocks the gilt-edged market declined through lack of support. Government credit fell with local govern- ment credit, proving that the two cannot be separated as the Treasury had pretended. To make matters worse Huddersfield raised last week a £2 million loan in the capital market in 5 per cent. stock 1971/75 at 99— the first 5 per cent. corporation stock since the 1930s—while Kenya followed with £4 million this week in 5 per cent. stock 1978182 at 96 to yield £5.4s.2d. per cent. I do not suppose that the Treasury wanted to see this slump in the gilt-edged market for it has £824 million of 24 per cent National War Bonds falling due for redemption in August. Moreover, it cannot allow its credit to fall in the market without causing some alarm among foreign holders of sterling. The weakness of the £ in terms of continen- tal currencies this week was noticeable. The only comfort I can give to British holders is that the Chancellor must do his best in the coming Budget to make Government stocks more attractive to the saver than equity shares.
Industrial shares have fallen still further and there is no sign as yet that the bear market is nearing its end. The index of the Financial Times has now dropped through its October low of 181 and seems bound to test its March, 1955, low' of 175.7 (it is below 178 as I write). On the top of bearish news and a warning from the Chancellor that further disinflationary measures are COming, ASSOCIATED ELECTRICAL INDUS- TRIES announce a huge new issue (said to be as large as £25 million) the terms of which will be published this weekend. This go-ahead company under the forward management of Lord Chandos had become very short of cash and well deserves the capital it is wanting for new developments in electronics and nuclear power. Its results for the year ending December, 1955, show a rise in group profits, before tax, of 12 per cent, earnings on the equity capital amounting to 53 per cent. The dividend has been increased to 15 per cent (against 14 per cent). The shares have been falling in anticipation of this issue for some time and are now only 63s. against a high last year of 96s. 9d. As a fall of 334 per cent is much steeper than the fall in the industrial share index (which is about 20 per cent below its July 1955 high of 223.9). i I suggest that theinvestor who buys for the long-term would do well to pick up AEI in the scrip form (free of stamp) when the new issue is quoted. It will probably present an opportunity of buying one of our best 'growth' equities on a 5 per cent or better yield basis.
Let us now turn to some equities in the consumption goods trade which do not suffer the violent market fluctuations of those of the manufacturers of capital goods. IMPERIAL TOBACCO has just reported a higher turnover but lower profit margins, its trading surplus rising only 14 per cent. The dividend was unchanged at 21 per cent. As its cigarette prices were recently in- creased to cover the increase in costs, the dividend may be regarded as reasonably safe, if not well covered. At 598.6d. to yield 7.05 per cent. the shares remain what brokers call a 'good income stock'. But I must point out that some other equities in the consumption goods trades are as good, if not better. For example, LIEBIO'S at 55s. yield 7* per cent. on the new dividend of 11 per cent. tax free which was covered 34 times by earnings. 'Oxo' profit margins were well maintained, for the net surplus for the year to August last rose by 30 per cent. and the dividend was increased from 10 per cent. to 11 per cent. tax free.
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