Investment Notes
y CUSTOS
Lnsiweek I could not have been more pessimistic and I hope some readers followed illY advice to take some profits last Friday. I repeat, 'the outlook for equities is bearish, until, '1Y. next February or March.' We shall know by :hen whether the American recession is going to ot worse or better and whether our own limited recession is going to extend into a general slump. 1r' the meantime the equity share markets will have to go through their correction. The Finan- 1 Times index has dropped below its previous inY) low of 295.8. This is about 14 per cent. glow the January high. The average yields are on w 4.7 per cent. on dividends and 10 per cent. h earnings. A few weeks ago these yields would ,,ave been considered very attractive, but un- doubtedly higher yields will be seen before the ---____
market is stabilised. Although the charts now point to a 'bear' market in equities, the professional opinion in the City is not yet predominantly bearish. The selling is described as 'small' and 'private': the institutions have not joined in the liquidation. It is the speculators who are being squeezed out of the market, especially in the recent popular gambles like property shares, where recently I had advised taking profits.
Steel Shares The market slump caught steel shares in a vulnerable stale bull position. It was only a few weeks ago that we were reading of a record pro- duction of steel due to the expansion of capacity and 'the exceptionally large demand for almost all the industry's products.' The market trend now depends on the December dividends to be de-
dared by nine important companies, particularly the final of UNITED STEEL on December 10. The SOUTH DURHAM report was not an auspicious start, although its net profits did show an increase of just over 11 per cent., for this company suffers from the fact that its main. customers are the depressed shipbuilding and oil industries. Higher hopes are entertained of United Steel, which has made striking technical advances, having con- verted three furnaces to the Ajax open hearth oxygen process, and is continuing to expand its output. Its interim dividend was increased from 4 per cent. to 6 per cent. and a final of 14 per cent., making 20 per cent., is possible. If much less is distributed the market will undoubtedly fall. FIRTH BROWN comes on December 9, STEEL COMPANY OF WALES on December I I, SUMMERS on December 12. Firth Brown raised the interim and could pay 121 per cent. against 9.2 per cent. Steel Company of Wales is expected to pay 12 per cent. against 10 per cent., and Summers 15 per cent. against the forecast 141 per cent. LANCA- SHIRE declares on December 18 and is expected to pay 10 per cent. against 81 per cent. All these dividends seem now to be discounted iq the prices and in view of the higher yields now obtainable I cannot see much to go for in the steel share market today except possibly United.
Moss Empires and Stoll Theatres
An interesting situation is developing in MOSS EMPIRES and STOLL THEATRES. It will be recalled
that Mr. Clore tried to take over Moss Empires with a bid of 13s. 6d. for the ordinary and 25s. for the preference. It was a poor bid because the book value of the 4s. ordinary shares (taking the theatres at balance sheet values and the 23 per cent. interest in the voting equity of ATV at the market price only of the non-voting shares) Is nearly 13s. If the theatre properties of Moss could be developed as Mr. Clore developed the old Stoll Theatre site the shares might well be worth double. It is stated that Mr. Clore made £750,000 piofit out of rebuilding the Stoll Theatre site with an office block and underground theatre. Mr. Prince Littler, who controls Stoll, successfully blocked Mr. Clore's bid because Stoll owns 44 per cent. of the Moss equity and bought sufficient of the voting preference shares to retain control. Mr. Littler has now been put on his mettle. His shafeholders expect that what Mr. Clore can do, he can do better. Mr. Littler. has already called in experts to advise him on the future of the theatre properties and among these experts is the well-known finance house, S. G. Warburg, a director of which is also director of St. Martin Le Grand Property Co. Mr. Littler has, therefore, all the technical assistance for property develop- ment that he needs. According to the Investors'
Chronicle, what Mr. Littler should now do is to merge Moss and Stoll, hive off the valuable theatre properties and give the shareholders an interest in a new property company. An up-to- date valuation of the theatre properties would, they say, throw up a surplus over book values of £4 million for Moss and £14 million for Stoll. How shareholders would come out of a merger it is impossible to say, but Moss Empires would appear to be cheaper, having regard to its valu- able theatres and its 23 per cent. interest in ATV voting shares. After Mr. Clore's bid the shares went up to 14s. 6d., but are now back to Its. 6d. They should be an attractive purchase at this price to yield 44 per cent. on the equivalent 134 per cent. dividend which was covered 1.1 times. But _to be on the safe side investors should per- haps buy an equivalent amount of Stoll Theatre shares at 8s. 6d., also yielding 44 per cent. on the twice-covered 10 per cent. dividend.
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