Down Burmah way

PORTFOLIO - JOHN BULL

Is there a case for buying Burmah Oil to stand alongside my second portfolio holding of British Petroleum? I notice that some of the most performance-conscious unit trusts have Burmah in their portfolios and certainly there is a feel- ing in oil industry circles that the company is

on the verge of a striking development (no pun intended). The possibilities are good oil finds in either India, Australia or Canada or, more likely, the acquisition of a sizeable retail chain in the United States, though hardly on the BP scale.

Shareholders in British Petroleum like my- self have to think particularly carefully about Burmah Oil simply because the company is the second largest shareholder in Be after the British government. So a holding in Burmah is a hold- ing in BP at one remove. Altogether Burmah owns just under 83 million BP shares (23.2 per cent of the equity) worth some £570 million or about 87s for each Burmah share (before capital gains tax) compared with a market price today for Burmah of 109s. Then there is a big holding in Shell (19 million shares) which adds up to another 13s 6d a share or thereabouts. Burmah is, therefore, primarily an investment trust with trading interests attached.

As usual in these cases you can do all sorts of fancy sums to show that the trading assets themselves are very cheaply rated. As prices stand at the moment you are in effect paying 8s 6d a share for pre-tax profits of just over £20 million from trading. That works out at a price earnings of just under ten, compared with the seventeen times earnings at which Shell is selling and the twenty-five price earnings ratio accorded to BP. Unfortunately these clever investment sums in themselves do not, in my view, add up to a strong buying signal. There are three snags. First, Burmah always looks cheap. It has been possible to arrive at similar conclusions for a very long time. Secondly, realisation of the huge BP holding is virtually impossible except over a very long period. Thirdly, a considerable capital gains tax liability would arise on disposal, taking asset-backing down to around 73s a share.

The case for Burmah should be based on the considerable evidence which abounds to suggest that the trading interests are being up- graded pretty fast. In 1967 (the latest year for which we have an analysis) the group derived somewhat more than half its trading income from operations in India and Pakistan, death, really, to the possibilities of a high investment rating because neither the immediate growth prospects of the Indian subcontinent nor the fiscal climate there suggests much progress in profits. It is what is being built around this core that provides hope for the future.

In the United States Burmah has a 60 per cent interest in Southdown Burmah, which has got small but growing production interests in offshore and inland wells. In Canada there is a 66 per cent holding in Great Plains Develop- ment Company, which has an extensive explora- tion programme on hand. In Australia, which is turning into a substantial source of crude oil, Burmah is represented by a 22 per cent interest in Santos and a 31 per cent interest in Wood- side (Lakes Entrance)—the latter company well known to British investors. It is also involved in other Australian consortia. Burmah is not, however, taking part in the hunt for oil up in

Alaska, which is a pity, but it may be possible to come to a useful agreement with BP. So as far as production is concerned, Burmah has some promising ventures under way and excit- ing possibilities in sight.

The same goes for retailing. Burmah has been buying up petrol stations in this country and on the Continent at a very fast pace indeed. In October 1967 the company bought 240 outlets in Sweden (Uno-X). Since then it has acquired another 1,000 stations in Belgium and Hol- land and bought one of the most successful cut price companies in Britain, Curfew. The aim is to have about 1,200 stations here by the mid-year, which will represent 2 per cent of the British market, a tiny but significant share. It also owns Castrol, which makes it strong in , the oil products market.

All this is satisfactory enough, and shows that the company is changing its status for the better. What, I think, could give the shares a sharp push forward would be news of a large scale invasion of the American market. The company raised £29 million in eurodollars last year, destination unknown. In any case, with its vast investments, Burmah can buy itself into any market it chooses, almost on any scale. And given that the top management seem to be working forward in a cool and canny way, I have bought a hundred shares for my second portfolio.

Valuations at 9 April 1969 First portfolio £6,767 (details next week) Second portfolio

609 Pillar Holdings at 19s 104d £596 15 Kaiser Steel at £36 8s .. £546 250 Lonrho at 65s 3d . £816 100 British Petroleum at 138s 7fd £693 300 Vosper at 26s lfd .. £393 1,000 Allied Breweries at 21s 3d .. £1,063 300 J. Bibby at 33s .. £495

lop Burmah Oil at 108s 10fd

f544 Cash in hand .. .. £915

0,061

Deduct: expenses £185 Total £5,876