INVESTMENT NOTES
TT is a good sign that investors are becoali 'more conscious of earnings yields and tendi to take their profits first on those fashionable slo shares with earnings yields well below 10 per ce MARKS AND SPENCER, with its fine managetue and record'of growth, is entitled to sell on an c ceptionally low yield basis. But is not 3.8 per cc a bit too low? A difficult case is GUS. In the h year to March net profits were 17+ per cent. after providing for unearned profits on the bi purchase trade, and for the whole year it woo seem likely that the company will earn about per cent. on the increased capital. This vloti allow an earnings yield of just below 8 per cc on the 'A' shares which have now fallen to 51s. Seeing that the huge hire-purchase finance profits will be accruing over the next few years, GUS 'A' seem to be a reasonable purchase if they fall to. 50s. DEBENHAMS at 42s. 6d. return 8 per cent. on icarnings, and UNI1ED DRAPERY at 49s. 3d. about :0.7 per cent. These now seem border-line cases. ;HOUSE OF FRASER with a 5 per cent, earnings yield are too speculative for my liking.
Oil Shares.
There has been an attempt to talk oil shares higher, which has been only partially successful. The trouble with the oil share market has been twofold. First, there has been selling by American and 'gross fund' holders because of the tax posi- lion. The net UK tax rate on SHELL, for example, Avas only 2d. last year, so that pension funds and Charities which can ordinarily claim back tax have virtually nothing to claim. The same applies to Americans and other foreigners under the double taxation rules. Secondly, there is a surplus supply problem which cannot just be corrected by cutting output in the oilfields (outside the US) because of political considerations (this applies lo the Middle East, Venezuela and of course the Sahara, which go on adding to the surplus in spite of the shut-down of American wells). The idea that the end of the world oil surplus is in sight is therefore premature. There is an excess refinery capacity of about 25 per cent. in the world oil industry. 1 am told by those in the business who should know that it will take two years at least before the rise in world consumption catches up With the prevailing surplus of supply. In the mean- time the current earnings of the big groups would not support any significant rise in the share markets. The third-quarter earnings of the ROYAL btrot-SHELL group are difficult to analyse because for the first time the full earnings of the Canadian Eagle are included, but it would appear that net profits are slightly down as compared with the ,second quarter due to a somewhat larger tax liability. For the whole year the market is esti- Mating Shell earnings at about 70 per cent. tax free, and some optimists arc looking for an increase in the 181 per cent. tax-free dividend.
Consolidated Goldfields
It was on September II that I recommended tONSOLIDATED GOLDFIELDS (with other gold finance shares) when they were yielding 6 per cent. Today they have risen to yield 51 per cent., but they are still worth buying. This company has lately taken over Anglo-French Exploration, New anion and H. E. Proprietary and has increased ,s large holding in West Wits, from which important mine developments have been reported. A broker's analysis gives an'estimate of the net asset value for Consolidated Goldfields of 130s. ;Against the present market price of 95s. For the bar ended June earnings are calculated at about 6d. per share, giving a good cover for the 5i. dividend. The earnings prospects for the cur- year are excellent. Increased dividends are !x peeled from most of the gold subsidiaries; other ;),corne from the base metal interests will also be higher. An increase in the dividend of Consoli-
ted Goldfields seems a reasonable assumption.
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