23 SEPTEMBER 1960, Page 39

Investment Notes

By CUSTOS rritu. break in the Dow Jones index of Ameri- I can industrial shares to 588—down through the expected support level of 600—was a signal for the bears to sell. My colleague referred, on August 12, to the coming recession in the US and since then the disappointing failure of capital investment to expand and the mounting stocks of unsold motor-cars have confirmed the worst business- fears. As far as our own economy is concerned, the only induStry to suffer in the near future is the motor industry, whose exports to the US have already slumped. I have long ago advised investors to stay out of motor shares. American capital has been leaving New York for investment in our own gilt-edged market, where yields are so much higher.' I doubt whether the Americans are in a mood to buy our equities, but if they arc they generally go for EMI. The short-term trend in our industrial equities downward. There have been. some bad com- pany reports from the consumer durable field 'and %cry disappointing half-yearly results from AEI. Steel shares were depressed by the prospect

of higher costs through dearer coal, which the industry puts at 10s. a ton.

Aircraft Shares

The promise of continued government aid for the aircraft industry recently given by Mr. Thorneycroft, the new Minister of Aviation, has brought fresh inquiries into the market in air- craft shares, which has been very steady for the past seven months. My own• choice is for the market leader HAWKER SIDDELEY, which, at 30s. 6d , gives a Yield of 6.9 per cent. on the equivalent 10.6 per cent dividend last covered twice, and WESTLAND 5s. shares at 15s. 3d., which return 4.2 per cent. on the equivalent 8 per cent. tax-free dividend last covered 3.9 times. Hawker Siddeley, which now includes De Havillands and the Blackburn Group, have extended their finan- cial year to end next December and it will be a long time before the,market knows the results of this critical period of reorganisation. The directors expect to pay a second interim dividend of 5 per cent. in January next and a final for the seventeen months of not less than 5 per cent. The Brush Electrical subsidiary is now said to be doing well, but the slump in its Canadian sub- sidiaries has yet to be overcome. Westland Air- craft has taken over Fairey,Aviation and the heli- copter activities of Bristol Aeroplane. It is on the helicopter development t'bat this company bases its future. The directors have said that they hope to pay not less than 8 per cent. tax free for the twelve months to September, 1960. Clearly in- vestors who enter the aircraft share market will have to exercise a great deal of patience.

Gold Shares and Goldfields

The recovery in the gold share market which I recently predicted (not on any rumours of a change in the price of gold) has made further headway and I was glad to sec an old recom- mendation of mine—CONSOLIDATED GOLDFIELDS ---recover to 70s. against a low this year of 56s. 6d. This company is raising £5 million by offering a 7 per cent. debenture at par. It is an extraordinarily high coupon to offer for a company which has just increased its gross profits by nearly 50 per cent. and paid a dividend of 25 per cent. covered over twice by equity earnings. There is to be a one-for-ten scrip issue and assuming that the 25 per cent. dividend will be maintained on the enlarged capital the yield at the present price is nearly 8 per cent. This is attractive as compared with the yield of 5.6 per cent. obtainable on ANGLO-AMERICAN and RAND SELECTION, and 6.7 per cent. on GENERAL MINING. Moreover, Goldfields is spreading its interests outside South Africa—in Australia, Canada, the US and the UK. About 51 per cent. of its income is now derived from earnings of its industrial subsidiaries. But its gold-mining interests are prospering. (The African labour force is contented, being very well treated, with the result that South African gold production this year has been running at a record level.) The yield oi. the Goldfields .debentures may attract some investors, but I would personally go for the equity every time.

British Sum.

Following up my notes on this undervalued hybrid equity I am delighted to hear that a deputation of shareholders has seen the directors as promised and that a memorandum is being prepared for submission to the Minister of Agri- culture by the directors on the shareholders' behalf. The shares have moved up to 25s. 6d. and should not be sold. I value them at not less than double their present market price.