Investment Notes
By CUSTOS ,
0 NE returns to the City roundabouts amazed at the calmness and firmness of the markets. A severe balance of payments crisis written up by alarmist economists seems to have left the investor unmoved. Wars and rumours of wars, seem to cause him no anxiety. Presumably holi- days and the marvellous weather proved to be the perfect sedative. And the political opinion polls made the bulls more confident about a Conservative victory, so that the Financial Times index of industrial shares has actually gone over its all-time high. With the undated gilt-edged stocks yielding nearly 6+ per cent equity shares on an average dividend yield of 4.8 per cent and an average earnings yield of 7.45 per cent cannot be considered cheap. However, there are some groups which are still reasonably valued. I think the hire-purchase finance group is one example. BOWMAKER, MERCANTILE CREDIT and ANGLO-AM-0 to yield respectively 4.9 per cent, 5.1 per cent and 5.4 per cent are all good purchases. The first to report will be Anglo-Auto for thee year to October and these results should be good. The oil group is another example. This has been held back by the report that the new agreement with the Middle East governments (OPEC) involves a higher price back-dated to January which will COSI BP and SHELL many millions. Shell have already allowed fore this increase in their recent quarterly report which disappointed the market. BP at 61s. 6d. to yield 5.8 per cent and Shell at 39s. 9d. to yield 5.7 per cent are both reasonably priced. BURMAH olt. is still the cheapest of the group to yield 6.2 per cent at 60s. There are rumours of another take-over bid for these shares.
Motors and Components
The motor engineering group has been hesita- ting in the recent firmness of markets-mainly because some tendentious articles have appeared , heralding the end of the motor boom. I am con- fident that this bearishness will be disproved by the report of um for the year ending this autumn. At 17s. 6d. to yield 5.6 per cent on the old divi- dend BMC are still reasonably valued. Of the components, I still like ASSOCIATED ENGINEERING, the parent company of a group making com- ponents for the internal combustion engine, 25 per cent of the business being with manufac- turers of cars and light vans. A firm of brokers points out in a detailed report that this group is just completing a large capital expenditure pro- gramme lasting over three years which has in- creased capacity and installed modern mass- production methods. The company has recently made an offer for the share capital of GLACIER METAL, makers of plain bearings, 60 per cent of whose business is outside the motor industry. The directors have forecast a dividend of 15 per cent for the year to September 30 and the estimate of profits shows that this dividend should be covered about twice. At the current price of 13s. 6d. the shares give a yield of 54 per cent on the forecast dividend. The earnings yield on the current year's figures should be over 11 per cent. Unlike many companies Associated Engineering discloses its turnover figures and profit margins. The UK side of the business produces over 80 per cent of the turnover and this proportion will rise by the addition of Glacier Metal. Overseas, the French and Italian subsidiaries have been in some diffi- culties, but the Board is confident that these are being overcome. This reminds me that WILMOT- BREEDEN have recently reported that their French company, which landed them in a heavy loss, has now turned the corner and this makes these shares at 1 Is. 3d. to yield 31 per cent on the reduced dividend a fair speculation. I prefer, however, the convertible preference shares at I Is. 104d., to. yield 8.4 per cent, which have never passed their dividend.
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