INVESTMENT NOTES
By CUSTOS
THE advance in industrial shares was tem- porarily stopped this week by the publication of the Cohen Council's second report. This was not surprising, seeing that the Council sees a con- tinuance of the mild recession over the rest of the year—with industrial output down, a worsen- ing of the trade and payments position and a further rise in labour costs per unit of produc- tion. meaning a further fall in profit margins. Why the gilt-edged market should fall on this prospect is not so clear. It surely provides a good opportunity to acquire some of the medium-dated stocks which have not enjoyed the gains of the long-dated or irredeemables. For example, Electricity 3 per cent., 1968-73, ex dividend at 74i and Savings 3 per cent., 1965-75, at 721, to yield respectively 4 per cent. and 41 per cent. flat and just over 51 per cent. to gross redemp- tion. I find that these stocks, after allowing for
accrued interest, have only appreciated by about
since April last. As the Government's policy is 'to go on feeding the market with the 'longs,' such as Funding 51 per cent., 1982-84, whose tap price has now been raised to 101f, so that the departments can acquire the 'shorts' and pro- vide for the maturity of £592 million in next January, it is obvious that the medium-dated stocks offer the prospect of the biggest rise over the next few months. Towards the end of Octo- ber, if not before, when the traditional period of strain in the sterling exchanges is passed, the market will surely be expecting another cut in Bank rate.
Associated Television and Associated British Pictures
It was a good thing to stop the gambling in television shares. The Stock Exchange Council rightly suspended dealings in GRANADA 5s. shares, which had been run up from under 16s. to over 42s. in a few days. As 80 per cent. of the equity is held by the Bernstein family there could be no free market in these shares. ASSOCIATED TELE- VISION, in which the Daily Mirror group, Moss Empires, Birmingham Post and Pye have an in- terest, have risen from about £6 to £81, and on the estimate of profits of £51 million for the current year (against £4 million for the year to March last) an earnings yield of 25 per cent. would be secured. This is more reasonable. It is safer perhaps to keep to ASSOCIATED BRITISH PICTURES, which owns its television subsidiary 100 per cent. and has therefore no interest in retaining the distributable profits. The estimated television profits for 1958-59 are £4.3 million (against £2.8 million in the previous year) and at 29s. 6d. the 5s. shares would return an earnings yield of 291 per cent. The shares also have a useful dividend yield of 5 per cent.
Banks or Industrial Shares
The Midland Bank 'personal loan' announce- ment Caused a rush out of hire-purchase finance shares into bank shares (which-1 had already ad- vocated). Lucky holders of MIDLAND can now take their 12s. profit and exchange into in- dustrial shares. Among the shares to put on the industrial list would be DISTILLERS, whose sales for the year ended March exceeded £200 million for the first time. This revenue was derived as to 75 per cent. from whisky and gin and the balance from yeast, chemicals, biochemicals and plastics. The chairinan, Sir Graham Hayman, warned shareholders that the immediate trading outlook was clouded by the American recession and the levelling out of demand in Europe, but perhaps his 'statement was written before the re- cent upturn in American business. Capital re- quirements are still heavy, and Sir Graham hinted that a scrip issue would be made—perhaps before the cash issue. Intending buyers should wait for the promised issue. In fact, in view of the dis- appointing report of Monsanto, buyers of indus- trial shares must be increasingly cautious and selective.
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