Account gamble
Firth and Brown's year
John Bull
This account share recommendation column has been running under a year so I can avoid a review until next April. I think in the main, however, speculators who followed my selections would still have found themselves able to afford brandy on their Christmas pudding. And I hope they have derived enjoyment from following the market as well.
I presume — and this is the usual psychological effect of a holiday, especially Christmas — that the stockmarket will take some time to regain its stride after recent buoyant behaviour. This is why I refrain from going for a short-term punt this week but select a share for 1973.
Buy Thos. Firth & John Brown, sit back and relax for twelve months and see this steel group outperform the market and produce a good enough capital appreciation to fill up next year's Christmas stocking.
Now it may seem a strange time to buy Firth & Brown since it is currently in the throes of a takeover bid from another Sheffield steel group, Dunford & Elliott. However in my opinion this reverse offer, valuing Firth & Brown at 212p per share is unlikely to succeed. And the alternatives are either that Firth & Brown goes it alone or receives much better terms from Dunford & Elliott or another party.
If we accept the former-choice, then the encouraging thing is that Firth & Brown is bound to do better in 1973. It has just announced results for the year to September 30, 1972 which show that after a poor start, with interim profits halved on a fall in turnover, there was a sharp recovery in the final six months trading.
The group has much to benefit from reorganisation of the parts acquired from the British Steel Corporation and this will show through in profits a year hence. It would, in fact, be surprising if Firth & Brown could not make pre-tax profits of £33million to £4 million, on which basis the shares at 224p are selling on a minimum PE ratio of 12. And this is only the first step on its path to recovery.
On the subject of a takeover I have said the chances of the Dunford & Elliott offer succeeding are perhaps slim. Yet after this company's move the market will be unlikely to forget that a takeover could be in the offing at a future date. This should keep the shares from slipping back, at least over the next month or so should the Dunford & Elliott bid fail.
So buy Firth & Brown now for 1973 and leave the really exciting account dealing until after the New Year.
First dealings Last dealings. Account day Dec. 11 Dec. 28 Jan. 9 Dec. 29 Jan. 12 Jan. 23 Jan. 15 Jan. 25 Feb. 6
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