Investment Notes
By CU.iTOS
THERE is little to tempt the bulls back into the market, except speculation on an early cut in Bank rate, which the experts do not expect. Some industrial reports have been wretched- AEI warns of a possible. dividend cut-and even if the international news improves, the market will remain nervous. ICI, the market leader, fell in anticipation of poor results. Special situations car., of course, still be exploited and these arise often in the new issue market. This week the huge £22 million issue of the ROYAL INSURANCE came to market-eighty-eight million 5s. shares at par. The old shares were quoted at 42s. 3d. ex rights but cum the 2s. 8d. gross dividend, to yield 3.7 per cent.: the new shares at 35s. 3d. This yield surely makes them attractive. EAGLE STAR, which I have constantly recommended. have risen to 113s. cum rights of one-in-four at 50s. This allows a potential yield of 21 per cent. GENERAL ACCIDENT, now split into 5s. shares, are worth buying on the fall to 72s.•6d. to yield 2 per cent.
Shell Transport
A welcome surprise for the market was the maintenance of the interim dividend by SHELL on the capital increased by the one-for-five scrip issue. Assuming that the final will also be main- tained, the shares at the higher price of 115s. would offer a yield of 7.1 per cent. gross on a tax-free dividend of 25 per cent. The reason why the shares did not rise by more than 4s. is that heavy selling came from the US. The holdings acquired by American investors some years ago at the height of the boom are being liquidated steadily. Also there is no institutional buying from 'gross funds,' because the net UK tax rate is nil. In spite of the steady rise in oil consumption which goes on throughout the world-in Europe it has lately been at the rate of 10 per cent. per annum, which is four times the rate of increase in the US-the international oil shares have lost investment popularity. In the first place, there is an increasing political risk The threat ot an invasion of Kuwait by Iraq may be past, but the instability of the governments in the Middle East is not lessening and is matched by that in Venezuela. In the second place, supplies of oil are continually in- creasing and bringing cuts in market prices (or discounts on posted prices) which are having an ill-effect on profit margins. Apart from the Saharan oil, which is trying to displace Middle East oil in the European Common Market (its output this year of around sixteen million tons will be nearly double that of 1960), the Italian State-owned concern AG1P is importing Russian oil into Europe at the rate of over four million tons this year. This has not yet reached the UK market, but Continental Oil has just acquired the Jet chain of 400 petrol stations and is selling petrol at 5d. or 6d. under combine prices. In the third place, the cost of discovering, develop- ing and distributing oil is steadily rising and although the big oil companies retain over two-. thirds of their earnings, they have to come to the market with frequent rights issues for fur- ther finance. When Shell are split into 5s. shares
in December they should become a more popu- lar market and on this high-yield basis they could be bought even now without much risk.
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