Bankers' choice
PORTFOLIO JOHN BULL
The most remarkable deal for a long time was announced last week. I refer to the big bank backing which Brayhead has obtained for its venture into computer equipment. Frankly, Brayhead has long been a highly speculative share, fluctuating in the past five years between Is and 18s. Lots of people have made money in Brayhead; equally, many have done badly. What has now happened is that the Union Bank of Switzerland has agreed to subscribe for one million shares at par. And that bank, together with Deutsche Bank, Dresd- ner Bank, Swiss Bank Corporation, Banca Commerciale Italians and others, has agreed to lend Brayhead's wholly owned subsidiary, Mastertape, $2.1 million, reserving the right to convert outstanding balances into Brayhead ordinary shares during the period 1970 to 1978 at 20 per cent below the price then ruling. Mastertape has also obtained further facilities to the tune of $900,000.
I call your attention to the fact that it is one of the top three Swiss banks, Union Bank of Switzerland, a house of immense prestige and influence, that has taken the equity stake in what to Zurich is a small, foreign com- pany. And in the consortium formed to put up the dollar loan you find the largest Swiss bank, two out of the three best names in Germany, plus well-known Italian banks. With the Bray- head price up to lOs lid, Union Bank is already doing very well.
What, then, is attracting such high-level sup- port? Mastertape produces random access storage discs for computers compatible with intst. The point about these discs is that they store information and, unlike magnetic tapes, they can be used for random access. Random access facilities are needed by—among others —banks, airline bookings and giro systems. Storage discs are indeed an absolutely first- class growth market. Who is in it already? Ism, Control Data and Memorex. Not one of these is British—and in any case demand so far outstrips supply at the moment that delays in obtaining this equipment are normal Brayhead plans to attack the American market and has set its sights on an initial 5 per cent of total sales. Europe, of course, is the home base. What sort of profits could Mastertape make? There is talk that earnings for 1968 could run out at about 25 per cent, which means that the shares are selling at about twenty times earnings. But it is in 1969 that really rapid growth should be achieved : on some optimistic forecasts this could involve a tripling of earnings. I, myself, am more im- pressed by the backing than the talk. I have, accordingly, bought 1,000 of the shares at lOs lid for my speculative portfolio.
I bought Cambridge Instrument on the hope that it could expect a higher price from Rank than that indicated in the opening bid for the company. Rank has yet to produce its formal offer documents, but meanwhile the Cam- bridge Instrument annual report has been published—and a very encouraging document it is. The flavour of the chairman's report is best caught by quotation: `Most of the costs of reorganisation were incurred in 1967, but the benefits will accrue in 1968 and there- after. . . . I am confluent that in 1968 sales and profits will rise substantially . . . our ex- port markets have a vast growth potential . . . 1967 will come to be regarded as the watershed in our company's history. . . . I am confident that 1968 will be a record year for sales and profits.' That is a fighting riposte to Rank. I shall continue to back Cambridge.
I have sold my £10 paid GLC stock at al, showing on the transaction a small loss. Patience, much more patience, is needed before we see a strong revival in fixed-interest stocks. Meanwhile it is pleasant to note that my first portfolio, started six months ago with £5,000, is now above the £6,000 mark, after charging £119 for dealing expenses—comfortably beating the market and showing a better-than-average return.
Valuations at I May 1968 First portfolio £6,021 (details next week) Second portfolio 100 Guardian Assurance at 45s 3d .. £226 40 Royal Exchange Assurance 113s 9d .-.
300 Cambridge• Instrument at 39s at .. £227 £585 1.000 Brayhead at lOs .. 1506 Cash in hand .. • • .. £3,479 £5,023 Deduct: previous expenses £27 this week's expenses £7 £34 Total 14,989 Note: The figure for 'cash in hand' includes £177, proceeds of the sale of £2,000 ci_c 71 per cent 1977 (lo paid) at f81.
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