15 AUGUST 1958, Page 25



WHEN I began these investment notes in May I suggested tentatively that February might have seen the resumption of the 'bull' market in equities but until the position was clarified I favoured a very selective investment policy with preference being given to consumer goods equi- ties. This policy has paid off well. Now that the industrial share index has risen 27 points or 171 per cent. from its February low of 154, I do not think that anyone can deny that we are set fair in a 'bull' movement. Technical conditions favour the rise. Money is being made cheaper, the credit squeeze is over, the Chancellor has promised further relaxation—in purchase taxes or hire- purchase controls—if the trade recession gets worse, and, after the sizeable market correction of last autumn, the average industrial equity yield is still close on 6.14 per cent. against a yield of under 5 per cent. on old Consols. The market is therefore ignoring bad company earnings and looking forward to recovery in 1959, as Wall Street is doing. As one broker put it, the Chancellor is really handing the market its confidence on a plate. It would be foolish to reject the dish.

Guest Keen and Triplex

Equity investment policy might now be broad- ened out to include chemicals, electronics (PYE and DUBILIER were recommended last week), indus- trial services (INITIAL SERVICES, for example, at 23s. 3d. to yield 5.8 per cent.) and select engineer- ing, such as GUEST KEEN and TRIPLEX. Guest Keen has just declared a three-for-ten share bonus. This company has many subsidiaries covering a wide range of engineering and is still engaged on a £30 million expansion programme announced over a year ago. The dividend policy has gradually been

made more liberal and with an interim of 4 per cent: promised on the new capital, a final of 8 per cent., making 12 per cent., is the least the market is expecting. At 57s. 3d. the shares arc equivalent to 44s. ex bonus and the yield on the basis of 12% dividend would be 5.45%. Triplex Holdings has just declared record results for the year to June last. After tax the net profits are no less than 70 per cent. up. Earnings on the equity amounted to nearly 80 per cent., covering the 20 per cent, maintained dividend about four times. With the final dividend there is added a special interim of 71 per cent. payable on the same date, which seems to indicate a restoration at least of the old dividend rate of 25 per cent and possibly 27+ per cent. The 10s. ordinary shares have moved up to 43s. 3d. and the potential yield on the basis of 271 per cent. would be 6.35 per cent.

Pacific Petroleum and Westcoast

Since my advice last week to average on sound Canadian holdings there has been a sharp rally in the markets in Montreal and Toronto. PACIFIC PETROLEUM, which I fancied, has risen 3 points to 39 (London), but as this touched 81f last year there is obviously still something to 'go for' in this speculative share. Pacific Petroleum is the parent or promoter of WESTCOAST TRANSMISSION, which has been under a cloud since its shaky appearance before the Borden Commission at the beginning of the year, where it was criticised for selling gas too cheaply to the Pacific North West pipeline. I have just been reading a leading broker's well-informed and voluminous apologia on Westcoast : he concludes that as soon as the

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INVESTMENT NOTES continued contract for an additional 250 million cubic feet of gas with El Paso can be fixed at a higher price, which will make the over-all price paid by the American customer compare not unfavourably with the prices paid by the two Canadian utility companies in British Columbia, all will be plain sailing and earnings of around $2 per share for Westcoast can be expected from the existing pipe- line. This additional contract is not, of course, a plain-sailing negotiation—Governments being involved—but I agree that if it does come off the market in Westcoast will be buoyant. The shares have come down from a high of 110 last year to a low of 37 this year and are currently quoted at 49. Like Pacific it is a highly speculative share but has possibilities. If the investor wants a less risky share he might consider INTERNATIONAL UTILITIES, an American company operating in natural gas and electricity in central Canada, with an interest in the projected Californian gas pipe- line which is rival to the Westcoast project. At $50 (London) the yield is 5.45 per cent. allowing for double tax relief.

N'Changa and Copper

The full report of N'CHANGA for .the year to June 30 revealed the fact that its operating costs were £150 a ton against an average market price on the London metal exchange of £198. This is the star performer on the copper belt of the well- managed Anglo-American group : it can work its rich ore or its poor ore accordingly as the market price dictates. Mr. Harry Oppenheimer, the chair- man, was optimistic about the prospects of the metal. He believes that the uncoordinated cuts in output made by producers in different parts of the world have been sufficient to redress the balance between supply and demand. The price of copper which has recovered to £206 should on this prospect recover to about £220 a ton. N'Changa shares have themselves recovered to £11 and at this price the yield on the present dividend is 44- per cent. flat or 7i- per cent. allowing for Domin- ion income tax relief. This seems to discount the future fully. I have favoured SELECTION TRUST as being less exposed to copper market risks in view of its 12+ per cent, interest in the American Metal Climax merger. The shares have risen from 62s. when I recommended them in March to 86s. 3d. to yield 84- per cent, on the 7s. dividend, which I think will be maintained. The shares seem to me much cheaper than N'changa.