Investment Notes
By CUSTOS
No one would accuse the Economist of being a raging 'bull' in matters of the Stock Ex- change, but I see that it tips the market for a further rise because company reports in the near future are bound to reflect the steady recovery which is going on in the economy. I would have put it differently. If company reports are not up to expectations the market will fall. It will need pretty good reports to keep it where it is, for it is already discounting the Maudling re- covery. Occasionally the reports are much better than the market anticipated. For example, PLESSEY amazed everyone with a report showing net profits more than doubled, with the dividend raised from 15 per cent to 19 per cent-and a scrip issue coming. On this occasion the shares rose 7s. in the week and at the present price of 73s. 6d. return only 2.6 per cent.
Department Shares
The coming sharp increase in rates, based on current values, made the market nervous about DEBENHAMS, which has £45 million of properties in its balance sheet. The report for 1962-63 was not, however, unsatisfactory for a year which covered a bad summer and a worse winter. Earn- ings were up from 264 per cent to 28 per cent and the dividend slightly raised to 20 per cent, giving a yield at the present price of 48s. of 44 per cent. UNITED DRAPERY was another good report, showing a rise of 7 per cent in their trading profits for the first half of the year, which was highly creditable in view of the bad weather. The interim dividend is raised from the equivalent of 63 per cent to 74 per cent, indi- cating, I think, a final of 174 per cent, making 25 per cent for the year, that is, if the second half of the year continues the advance. On this basis, the 5s. shares at 36s. would yield 3.5 per cent. This is not a bad return for a department store. It compares with 3 per cent at present obtainable on Gus 'A' on the last dividend of 333 per cent (assuming a dividend rise to 35 per cent, the yield would be only 3.1 per cent). It is estimated that a little over one third of GUS profits are derived from the mail-order business and according to Sir Isaac Wolfson the prospects for the catalogue companies are excellent. Warehouses and office facilities are constantly being expanded and modernised to deal with the rising mail-order sales. So far this year group sales and trading profits are in excess of the comparable pejiod last year. The company seems bound to be one of the chief beneficiaries of the current rise in consumer spending. On the whole I prefer GUS to the department stores.
Gold and Copper
It is the job of an open market to look ahead, and when Mr. Wilson made his rude remarks about the South African Government a spasm of nervousness overtook the gold share market. If things came to a clash under Mr. Wilson's regime, the market asked, would Dr. Verwoerd take over British holdings in South Africa? The risk seems to me far-fetched, but I 'am won- dering whether the political risks in South Africa are not under-estimated as compared with those in Northern Rhodesia. OFSITS, the holding com- pany of the OFS mines, yields 6.2 per cent, but RHODESIAN ANGLO-AMERICAN, the holding com- pany for the copper mines of the Anglo- American group, yields 12.6 per cent. I have previously expressed the view that there should be no difficulty in the copper-mining groups coming to terms with the new government. If investors who hold South African gold shares still feel nervous about Northern Rhodesia, they might consider switching out of their gold shares into the finance houses which are distributing their interests outside South Africa. Chief among these is CONSOLIDATED GOLDFIELDS whose outside interests in Australia, Canada, America and the UK now account for over 20 per cent of total profits. This is a fair beginning but redistribution of holdings is a long process and Consolidated Goldfields is going to remain dependent on South Africa for a very long time, unless it does a major. operation in selling its South African interests to a group like Anglo-American who is in South Africa for good. Consolidated Goldfields is registered in London and at the present price of 75s. ,returns 6.6 per cent. The market price is of course well below the break-up value cif its investments.
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