Sharp instrument
PORTFOLIO JOHN BULL
Having had a lucrative run with Cambridge Instrument as Rank and George Kent fought for control, I am encouraged to look again at the instrument-makers for an opportunity for my speculative portfolio. I have everybody's word for it—from the Industrial Reorganisation Cor- poration to Rank Organisation—that the instru- ment business is fragmented, the- independent
units too small to compete for the big prizes. George Kent is trying to do something about it, backed by the IRC. So also is Rank. I expect both parties to continue the good work. Reorganisation of the instrument-makers is by no means over. There must be more bids on the way.
In this situation I propose to back Negretti and Zambra, a small, long-established com- pany which shows encouraging signs of re- . juvenation. I am also struck by what the chairman told shareholders at the annual meet- ing last week. He said: 'Your directors are studying closely the moves in the instrument industry and their implications on your group.
They intend to ensure that the interests of shareholders, employees and customers are adequately safeguarded in the reconstruction of the industry which is now occurring.' And in answer to a question whether the company had received any takeover approach as part of the shake-up, Mr Negretti replied, 'No com- ment,' but pointed out there .had been various tentative approaches at regular intervals since 1948. The board and their families apparently control about 80 per cent of the equity.
The trouble with Negretti and Zambra is that its latest results are absolutely frightful, driving the 'A' share price down from 18s 9d to 15s 6d. They now stand at 15s 9d. Even though some small acquisitions will have made their first profits contribution to the latest figures, there is likely to be 'a substantial loss.'
Well, there are losses and losses. This one largely arises from a fixed-price contract en- tered into in 1964. It cannot, one hopes, dis- figure the accounts again. What is more disturbing is that turnover is static, with rising costs eating away profit margins. Against that rather miserable picture I can set a few rather more encouraging facts. If Negretti can get back to the level of profits it was earning last year—which, as a non-recurring loss accounts for most of the difference, should not be too tough a task—then at 16s the shares would be selling for twelve to fourteen times earnings, which is cheap by today's standards. Second, the loss is in fact struck after the provision of an enormous slice of development costs (£180,000 in the twelve months to 30 September last) which will soon bring a reward. The new products are scheduled to contribute to profits during 1968-69. Third, the company has been thoroughly reorganised. The managing director, Mr J. E. Samson, is just under forty. Finally, Negretti and Zambra is taking the very best advice, for its merchant bankers are S. G. Warburg. I have bought 500 shares for my second, speculative, portfolio. I fancy that with patience, this could be a rewarding holding.
At the same time I am turfing out a dis- appointing pair from my speculative portfolio —Royal Exchange Assurance and Guardian Assurance. They are engaged in a most unin-
spiring merger—contrary to my expectation. I have held on to them during the past few weeks only because I have hoped that I could exit without a loss. But in the event I have de- cided to call it a day, a few pounds down.
Braybead shot up to over 19s last week, almost double what I paid for them (10s lid) a few weeks ago. American buying has been pushing them along on the expectation that Brayhead's subsidiary, Mastertape, will make a lot of money out of specialised computer equipment. The shares arc now a bit down on profit taking—but I shall stay with them for the time being.
Valuation at 26 June 1968 First portfolio 0,268 (details next week) Second portfolio 1,000 Brayhead at 17s £856 600 Pillar Holdings at 12s lid £367
500 Negretti and Zambra 'A' at 15s 9d £384
Cash in hand .. £3,792 £5,399 Deduct: expenses £62 Total £5,337.
Note : the figure for 'cash in hand' includes £384, the proceeds of 100 Guardian Assurance at 38s 9d and 40 Royal Assurance at 95s.
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