Investment Notes
By CUSTOS
A LEADING firm of brokers describes the equity share market as tending to be manic- depressive. It certainly alternates between the ex- tremes of optimism and pessimism, and in the pessimistic phase it usually pays the investor, as they say, to pick up the shares of defensive or proven-growth shares. Insurance shares, as I have said, lead the defensive class, but brewery shares have lately been running them close. In- vestment trusts, banks, stores and other con- sumer and service trades are also defensive stocks. but even here companies can run into manage- ment trouble. For example, INITIAL SERVICES, which supplies a towel and tea service to com- mercial companies, made too much profit in the boom 'at the expense of proper and prudent operational efficiency.' The shares fell from 51s. to 29s. 9d. and are now a better market at 34s. to yield 4.7 per cent. The bugbear of com- petition from ADVANCE LAUNDRIES has, I under- stand, now been settled. Who could have said that the shares were a 'sale' at 51s. and a 'buy' at 29s. 9d.? Even consumer shares are not without considerable risk.
Brewery Shares
Since the peak in May the Financial Times industrial share index has fallen by 19 per cent., but the brewery index is virtually at the top. The output of beer this year is likely to rise by about 6 per cent. and the market is looking for an increase of about 10 per cent. in brewery company profits before tax. The economies effected by sonic recent mergers have still to be realised. But care must be taken by the investor at current prices, which discount the future for some companies far ahead. I had been distrust- ful of UNITED BREWERIES, which had been doing more acquisitions than most groups and had been paying fairly high prices, but this com- pany has just announced a 12 per cent. increase in profits and is paying a final dividend of 71 per cent. (against 6 per cent. forecast), making 121 per cent, for the year to September 30. On this basis the shares, at 13s. 6d., return a yield of 4.6 per cent. and look attractive. THRELFALCS, Which recently merged With CHESTER BREWERY, are still reasonably priced at 25s. to yield 4.3 per cent.
Investment Trusts
The market in investment trusts is so difficult that price discrepancies are often thrown up. For example, Scottish investment trusts usually stand at a premium over London because their managements enjoy a higher reputation, but SECURITIES TRUST OF SCOTLAND are an excep- tion. 'They stand at about 12 per cent. below their peak, at about 10 per cent. below their break-up value, and they yield nearly 31 per cent. GLOBE TELEGRAPH, which has a 50 per cent. interest in CABLES INVESTMENT TRUST, is selling at a higher discount on its break-up value— namely, 22 per cent.—than any other well- known trust. This may be explained by the fact that its current dividend yield is only 2.7 per cent., its custom being to keep the dividend fixed at 10 per cent. and give annual 'rights' to shareholders. I would again draw attention to HOME AND FOREIGN, which has 20 per cent. of its portfolio invested in insurance shares. This Is selling at 28s. 9d., against a break-up value of around 27s. 6d., and yields about 34 per cent.
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