Investment Notes
By CUSTOS
THE unresolved steel strike, the end of the resale price maintenance and the political uncertainty all contrived to put the equity market lower at the beginning of this week. But it is significant that there are always buyers of promising shares at the lower levels. Investors have, however, become highly selective. They have sold WOOLWORTH on the record profits and the one-for-one scrip issue, for example, and bought PLESSEY, which has come back from 85s. 6d. to 76s. 9d. At this level, with a potential earnings yield of nearly 10 per cent, Plessey has been firmly supported. EMI has not had a comparable setback, but at 42s. 6d., to yield over 4 per cent on dividends, the shares are attracting buyers. The explanation here is the great improvement in the current year's pros- pects. Thanks largely to the Beatles, sales of EMI records have increased by 40 per cent in the first five months of the current trading year, while the electronics business, which has been the laggard, is now showing a 'welcome im- provement.' Equity earnings, should, therefore, be greatly improved and an increase in the divi- dend, which has been held at 17+ per cent for the past four years, is probable.
Gwent
It can only be a matter of time before the Hodge group shares recover fully from the Sunday Telegraph attack, for each time Mr. Julian Hodge reports the trading results of his two main companies, ANGLO-AUTO FINANCE and GWENT AND WEST OF ENGLAND ENTERPRISES, they invariably exceed his own optimistic forecasts. For example, Anglo-Auto recently reported a rise in pre-tax profits of 57 per cent and now forecasts a dividend of 35 per cent to yield 5.3 per cent at the present price of. 6s. 3d. Gwent now reports pre-tax profits up from £818,000 to £1,702,000. Allowing for the recent acquisitions, this is equivalent to a rise of 31 per cent. The dividend is being raised from the equivalent of 66+ per cent to 80 per cent and a one-for-one bonus is being distributed. The equivalent of 100 per cent is now forecast as dividend, so at the present price of 17s. 6d. the shares yield a potential 5.7 per cent. I think a case can be made out for expecting a lower yield on Gwent than on Anglo-Auto. Gwent has 50.4 per cent of Anglo-Auto and its outside interests are now widely spread. It has an expanding merchant bank and issuing house, a leading de- partment store in Cardiff, a motor company making three-wheel cars (Reliant), cinemas turned into garages for motor sales and service, not to mention a hire-transport and ware- housing division and a substantial investment in the prosperous L. Ryan Holdings on which I comment below. In due course I think that Anglo-Auto will appreciate to offer a yield of around 5 per cent and Gwent to offer a yield around 4.; per cent. This would indicate a price for the shares of around 21s. before the split.
L. Ryan Holdings I recommended these shares on March 29, 1963, when they were standing at the equivalent of I Is. They are now I6s. 6d., having been as high at I7s. 6d. I put them forward because the management of the company had been clever enough to buy up the available coal tips in South Wales and develop a machine for recovering the coal therefrom which enabled them to sell fuel to power stations at lower prices than the Coal Board. Management skill is always worth invest- ing in. The results for the year ending November will be reported in the first week of February and should be good, as the company has been extending its plant-hire business. I would be sur- prised if the chairman is not able to announce that he has secured a contract to tackle the Coal Board tips when he takes the meeting later on. The shares arc speculative, but are worth picking up on any reaction.
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