COMPANY NOTES
By CUSTOS
A DISMAL week in Throgmorton Street started with a black oil Mon- day. Following the slump in SHELL on the huge financing programme itili PETROLEUM upset the market by taking steps to increase the capital by £80 million and vaguely hinting at a cash issue. as well as a scrip bonus. Everyone knows that the oil industry is a greedy one for capital. Last year the ROYAL DUTCH -SH ELL group spent £388 million on capital account—£55 million more than in 1955. Early next year the group intends to raise between £115 and £150 million, of which the Shell share would be between £40 and £55 million. This is not large by comparison with the existing market of the equity, which is over £650 million. If shareholders had to find 81 per cent, of the value of their shares it would .not be considered a hardship in normal times. The size of the BP issue, if and when it .comes, is not even being discussed. Thefl more interesting question is whether BURMAH OIL will have, to raise more capital to take up its 264 per cent, participation in the BP issue and exercise its rights on 3,000,000 Shell shares. It is possible that it will hand these rights over to its own shareholders. At the present deflated price of 81s. 9d. Burmah Oil shares now yield 54 per cent. (against 4.7 per cent. on BP). The shares undoubtedly look cheap. So do Shell at 161s. 9d. (after a fall of 25 per cent. from, the- year's high of 181s. 3d.) to yield just over 4 per cent. Usually Shell have found strong support in the market when they fall to a 4 per cent, yield basis.
The recovery in sterling to $2.80 encouraged an all-round improvement in the 'gilt-edged market. If the worst has been seen in the gold and dollar res"erves there is no reason why this market should not go further' ahead. There are some attractive 'shorts.' For example, EXCHEQUER 2 per cent. -February, 1960, at 92-,1 to yield £5 12s. per cent, to redemption. If the tax-free capital profit is 'grossed up' at 8s. 6d. the equivalent gross redemption would be £8 2s per cent. CONVERSION 4+ per cent. Eebruary, 1962, at
934 gives the highest running yield for the 'shorts' of £4 16s. 5d., a redemption yield' of £6 Ss. 3d. per cent., and a true 'grossed-up' redemption yield of £7 5s. 11d, per cent. Of the medium-dated stocks I recommend Savings 3 per cent. 1960-70 at 754 to yield 4 per cent, flat or £5 15s. 8d. per cent. to redemption. The tax-free capital profit of nearly 25 points brings the true 'grossed-up' redemption yield to £7 8s. 2d: per cent. * *
The industrial share markets continue to decline under moderate but persistent selling. On the whole this is an orderly 'bear' market. One section which resists the slide is the steel shares, Which are now below their de-nationalisation issue prices. For example, CONSETT, FIRTH AND BROWN, HADFIELDS, SOUTH DURHAM, STEEL 01! WALES and WHITEHEAD : yields of 8 per cent. to 9 per cent, can be obtained. Surely this is a deflated enough market to attract 'sound investment
buying. * * *
Here is another equity share which most in- vestors are willing to hold through thick or thin. BRITISH AMERICAN TOBACCO is not concerned with the tobacco trade in this country: it handles the export side and controls subsidiary companies operating in the US, Canada, Australia and the Far East. Its subsidiary in the US, called Brown and Williamson, scored a big success with a neW filter-tipped brand of cigarette when the cancer scare swept the country and actually increased its share of the American market. This year tobacco consumption in the US is expected to be a record, and following a rise in cigarette prices Brown and Williamson should return good profits. In other parts of the world, -particularlY in the under-developed countries, the tobacco trade should still be expanding and BAT can still be regarded as a growth stock. Earnings last year Were sufficient to cover the 15 'per cent. tax-free dividend about three times over and I am informed on good authority that the real earnings are substantially in excess of 45 per cent. At the present price of about 40s. the shares yield 64 per cent. gross.
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