COMPANY NOTES
By CUSTOS
TAKING stock of the investment position one finds that the index of industrial equity shares has only fallen about S per cent. from its top, which was on July 9. As it rose by 28 per cent. from its bottom, which was in November last, one would not call this reaction the end of the bull market. In fact, a bull market often loses 25 per cent. to 30 per cent. of a strong upward lift before it resumes its bullish course again. I would expect a further fall at the present time because the uncertainties which are holding back investment buying are not likely- to be resolved very quickly. The worst, which is the doubt about an American recession, is going to worry every- one for another month or so. If there is no autumn revival in the US, it means that business- men there are anticipating some recession next spring. The index of Wall Street industrials has now fallen nearly 10 per cent. from its high this year and it has only another 4 per cent. to fall before it penetrates its low for the year. ThO will be the testing time. If a bear market sets in, it will be a warning sign that Wall Street is ex- pecting a considerable recession next year, which could not fail to have an adverse effect upon our export trade. This could bring our bull market to a temporary stop. I am afraid this diagnosis is not very encouraging, but I am sure that it will pay the investor to exercise great caution for the time being and, if possible, to stay out of the
market. * Other uncertainties are Wall Street, the sterling exchange and the gilt-edged market. There was some recovery in all at the beginning of the week, with War Loan rising to about 66, but a small margin of 0.4 per cent. between the yield on old Consols and the average yield on industrial equities persists, which is abnormal. A year ago the margin was 1 per cent. Either the gilt-edged market must rise or the industrial equity market must fall to widen the margin to more normal pro- portions. One hopes that it will be the former, but little encouragement has been gained from the Chancellor's 'inflation' talks at the National Production Advisory Council. As for the 'three wise men,' the Chancellor now expects their Council to make only a 'long-term' contribution to the solving of the inflation problem. If he would only call in a few 'gilt-edged' jobbers and brokers to advise him he would get far better results in market management.
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Among dull industrial markets INTERNATIONAL TEA fell on the collapse of the rumour of a take- over bid. The chairman at the general meeting stated that the company was embarking on a scheme of modernisation of the branches and that to finance it over a period of years it was selling to the Legal and General Assurance a number of the freehold properties which it would take back on long lease. This is a justifiable and prudent action, but it destroys the attraction of the company to an outside financier, like Mr. Clore, who might want to sell the freeholds and use the money elsewhere. Last year IT sales reached a new high record and profit margins were also slightly better. This year so far sales are again showing 'a nice increase.' If the 5s. shares fall further—they have been as low as 13s. this year—they should be an attractive purchase. -At the moment they yield 5.4 per cent, at 16s. lid. And if the gilt-edged market will only hold its head up, the 7 per cent. 'A' preference shares at 21s. 3d. are also worth having to yield 6+ per cent.
Here are two recommendations which have justified themselves. ALBRIGHT AND WILSON profits for the first half of 1957 show a satis- factory increase and the directors expect this im- provement to be held for the remainder of the year. This puts current earnings at around 45 per cent, against the current dividend of 18 per cent. The 5s. shares have risen to 22s. 3d. against a low this year of 17s. 9d., and at this price return only 4 per cent. An exchange into ICI if they fall to 40s. to yield 5 per cent. might be con- sidered. The DUBILIER CONDENSER statement con- firmed my confidence in this company's prospects. Sales turnover for the first three months of the current year is slightly in excess of the previous year, but profit margins are still being slimmed and next year's results may even show little or no improvement. But the long-term prospect is good. A new factory at Acton is to be built to extend the laboratory and development projects. The company is one of those asked to assist in the development of H-power (harnessing the hydrogen bomb). A one-for-two scrip issue is being made, and at 6s. 6d. to yield 41 per cent. the Is. shares will probably pay to lock up.
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