Investment Notes
By CUSTOS THE idea that the Bank of England would put up Bank rate the first week that the Prime Minister appeared in the House of Commons was not taken too seriously by the market. The Americans also obliged Sir Alec by saying that they do not wish to raise their short-term money rates so high as to embarrass other countries. Yet there is an ominous harden- ing of money rates going on in Europe. Belgium and France have raised their Bank rates—fol- lowing Sweden—and Holland and Italy have been making money tighter. We are seeing, I believe, the first effects of Mr. Kennedy's cam- paign to eliminate the American balance of payments deficit. Some drastic cuts in American defence expenditure have been made and more are to come. If the President achieves his ob- jective of eliminating a deficit of $2,000 million in eighteen months, Europe may suffer a credit crisis. Already the surplus dollars which have been re-lent to European business people— Eurodollars which the Americans will not con- vert into gold—have been pledged as collateral for loans and if the supply of new Eurodollars dries up European business is going to feel the pinch. The first sign has been some sizeable bankruptcies in Germany. This is not only a bear point for the gilt-edged market but for our export boom. There is no doubt that our Euro- pean exports have been boosted by the European inflation, particularly in France and Italy. If deflation is the new order of the European day Mr. Maudling will have to revise his estimates.
This has been a disappointing share to hold, for its three main interests never seem to flourish at the same time. In the year to June last the electronics division had a sharp setback, while the refrigerator division was still suffer- ing from the over-capacity in that industry. The chairman says that steps have been taken to restore profitability in these sections but the mainstay of the business is still likely to be the records division which benefited from the marked recovery in the American subsidiary, Capitol, last year. In the current year records sales will be boosted by the Beatles, for whose discs there is a sensational demand.- More than two million Beatles records have gone over the counters and the fifth 'single' due for issue next month has advance orders for half a million. The exact percentage of EMI profits accounted for by records is never stated but it must be near 70 per cent. Last year pre-tax profits rose slightly to £5.1 million and equity earnings from 32 per cent to 331 per cent. The 17+ per cent dividend is thus covered 1.9 times and at 40s. 6d. the shares yield 4.2 per cent. The Beatles should encourage shareholders to wait for a further recovery this year but I must say that if I were a shareholder I would not wait too long before making a change.
Montague Burton Something is going on behind the scenes at MONTAGUE BURTON. It will be recalled that the market was very disappointed with the com- pany's results for the year to end-August, 1962. The management had refused to raise prices to meet rising costs. At the annual manager's' con- ference at Harrogate on October 29 the managing director, Mr. Jacobson; stated that 1962-63 trading profits would be maintained in spite of heavy depreciation for new plant and the bad winter, but pre-tax profits would be slightly down as a result of the new debenture interest. Probably investment allowances on the new plant will prevent a fall in post-tax profits and there should be sufficient earnings to cover the 7 per cent dividend with at least a 50 per cent margin. The fact that the company is now enjoying a record turnover suggests that the corner has been turned. The 'A' shares, which have been as low as 15s. 3d. this year, have recovered to 20s. 6d. to yield 3.1 per cent. This price is well below the 26s. 6d. balance sheet value of the equity. The company has 750 freehold and leasehold shops which generally occupy fine sites in their respective towns. I would advise shareholders ti wait for further, developments.
Previous page
