COMPANY NOTES
BY CUSTOS As the Stock Exchange has been pacifist by 'conviction throughout the Suez crisis it was natural that it should respond hope- fully when the dispute was referred to the United Nations. But prices came back again through lack of any 'follow through' in business. As I write the Middle East oils are 2s. to 4s. better although ROYAL DUTCH has eased on disappointment that the split was a real split and not a bonus. The gilt- edged market is firmer but still very idle. The new East Africa 54 per cent. 1980-84 loan issued at 98+ opened up at about * discount. Croydon has placed privately £1 million of 5* per cent. stock 1961 at 99, and this is expected to open at a small premium. There is no prospect yet of any lowering of interest rates. The annual flurry in gold shares which attends the usual request of the South African Finance Minister, attending the IMF meeting, to raise the price of gold has been enjoyed and it is noticeable that the ()FS remains firm. There is more reason for it this year when a proved developing mine like PRESIDENT BRAND is returning a yield of nearly 6 per cent. on the basis of existing dividends. When dividends are cut on British industrial shares and raised on the OFS leaders some switching to the gold share market can be expected.
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The uncertain weather for industrial profits, which was the theme of the article here two weeks ago, was promptly illus- trated by the half-year's report of A.E.I. The trading profit was more than 20 per cent. lower than for the corresponding period of 1955. Orders received have also fallen, though not substantially. The value of output was £61 million against £69 mil- lion in the last half of 1955 and £58.6 million in the first half. The most disturb- ing point of the report was the fall in profit margins—from 11 per cent. in the first half of 1955 to 8.4 per cent. Higher wages are no doubt the main cause but there is said to have been a non-recurring loss in the reorganisation of the refrigerator business. The market took the report badly and the shares fell 2s. 6d. to 64s. 6d. Two interim dividends of 24 per cent. have been
paid on the old capital and a final of 10 per cent. on the increased capital is still expected. This would allow a yield of 4.65 per cent. As the full effect on profits of the new capital raised last March has not yet been seen, A.E.I. can still be regarded as a fine 'growth' equity but the yield is not attractive and the shares may have to fall farther before they appeal to the average investor. * *
The whole market in electrical equip- ment shares came back not only on account of the disappointing A.E.I. report but on the huge new issue announced by G.E.C., namely £6 million in 6 per cent. unsecured loan stock at par and £84 mil- lion in ordinary shares on a rights basis of three for ten at 40s. Excess applications are to be invited up to another 185,000 shares. The new capital is needed to finance the expansion of business and to continue the modernisation and re-equipment of buildings and plant. Sales and orders have increased in the first four months pf the current year but no statement is made about costs, profit margins and dividend policy. This is to. be regretted. Last year's dividend was 14 per cent. covered 2.3 times by earnings. The optimists are assum- ing that the 14 per cent. will be maintained on the increased capital, but I would prefer to wait for the chairman's expected state- ment at the forthcoming meeting. At 44s. 6d. cum rights the yield would be over 64 per cent. if the dividend were main- tained. On the whole I prefer ENGLISH ELECTRIC which at 47s. 3d. is returning the not unattractive yield for a 'growth' stock of 51 per cent.
Store shares have been enlivened by Mr. Clore's £5.8 million bid (in cash and shares) through SEARS for the DOLCIS business, whose shares are now 19s. against 13s. 6d. two months ago. Another stimulus was the excellent half-yearly report of UNITED DRAPERY. An interim of 124 per cent. has been declared and assuming a final of 20 per cent., making 324 per cent., the yield at the present price of 21s. 6d. for the 5s. shares would be 74 per cent.
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