LOOKING at the chart of the present 'bear' market in equity shares, what mugs we were not to take advantage of the sharp peak in October last year to liquidate the greater part of our portfolios! A Labour government had been elected and their election manifesto had warned us about the taxation revolution to come. But few people thought that with a majority of ifive a Labour government could stay long in office. And few could have imagined that confidence in the £ would have been lost so quickly. From the October all-time high of 378, the Financial Times index fell to 323 by the end of the year, recovered to 352 and is now slipping back to test that December resistance point. Most pro- fessionals think that it will fall to near 300 before the budget. The market has not been helped by the slump in its one-time glamour stock, RANK ORGANISATION. The half-yearly report revealed a rise of only 6 per cent in profits before tax and the reason given for this disappointment was a `serious reversal in the trading results of Rank- Bush Murphy,' which used to have nearly 15 per cent of the TV market. The rest of the Rank business is doing well-Xerox in particular-and the directors are raising the interim dividend and forecasting 21 per cent for the year against 181 per cent. This sharply improves the yield, and as the 'A' shares have fallen 6s. this year, to yield 4.9 per cent-more than twice covered by earnings-they must be considered too cheap to sell. The chairman confirmed this in a press interview.
The international oil shares have been out of favour, both in New York and in London, for some time. The fourth-quarter results have been disappointing-price-cutting in refined products is still rampant-and those groups with large out- puts in the Middle East have had to make heavier Payments to the Arab states under the new OPEC agreement. This will Cog BRITISH PETROLEUM dear and ROYAL DUTCH SHELL, too. On top of this impost comes the April budget's corporation tax, which will hurt companies with large overseas interests. It is said that Mr. Callaghan will make a special concession to the oil companies, but we must wait and see. After a fall since the 1964 'highs' of 22 per cent for Shell and 19 per cent for BP, I think these oil leaders are too low for selling and I would even contemplate a purchase of BURMAH after a fall of 11 per cent to 46s. 6d. About 85 per cent of this price is represented by their holdings in BP and Shell and it is now clear that Burmah will have to pay out 100 per cent of its oil dividends, so that the gross yield of nearly 8 per cent may well be higher.
Julian S. Hodge Bankers
Congratulations to Mr. Julian Hodge on mak- ing a public issue of his merchant bank-through an offer in Birmingham-and on raising its profits from £80,000 in 1962 to £401,000 in 1964 and In £650,000 for the year to October 1965. At 13s. 9d., to yield £5 Is. 101d. per cent, this is a Welcome addition to the bank share list.