18 MAY 1962, Page 27

Investment Notes


TIE vicious effect of the new capital gains I tax on the security markets was well illus- trated in the last ten days. Because few dare to sell holdings of safe 'growth' shares (as the in- surance group), prices are driven up to extrava- gant heights in a bull market, and then, when a national docks strike is threatened and they meet with some selling, they fall to unreasonably low prices because no professional dares to buy. Take the case of EAGLE STAR. They rise to 145s. 9d., fall to 131s. 6d. in a few days and then recover on Monday of this week to 138s. 6d. Probably the shares passing hands are half the usual volume. The lesson is to take advantage of these temporary upsets and buy for the long (or over six months') term. The opportunity still obtains to buy GENERAL ACCIDENT at a cheaper price-108s. 6d. cum rights of one-in-ten at 60s. The meeting to approve the rights is at the end of the month, not May 10 as I had stated. I regard these shares as less speculative than Eagle Star, if 'speculative' can be applied to anything so steady as composite insurance. SUN ALLIANCE is also cheap. This company has just reported a big increase (nearly 25 per cent.) in underwriting profits. Its life department grows more slowly (being closely related to the building societies), • but at 97s. 6d. to yield 2.7 per cent. I regard the shares as undervalued.

Property Shares While insurance and bank shares were having their shake-out—bank shares are still on the high side in my opinion—property shares remained

comparatively firm. One of these days they will go too high and become really vulnerable, but I cannot see this happening yet awhile. CAPITAL AND COUNTIES is making a rights issue of one-in- seven at 42s. 6d., but this has not greatly affected the price of the old, which are 51s. 6d. (to yield 2 per. cent. (against a high of 53s. 3d.). This company is doing the £20 million development in Knightsbridge and, in addition, a £3 million office block in the Strand. It is also negotiating with the Duke of Norfolk for around twelve and a half acres for development between the Strand and the Thames Embankment. For the smaller investor who wants a development share at a cheaper price, I can recommend ALLIED SECURI- 11ES 5s. shares at Ils. to yield 3.6 per cent. This is a property holding and investment company whose shares were introduced two years ago at 7s. 9d. Its rental income is now steadily in- creasing and it has recently acquired the freehold of Elsley House and Court in Great Titchfield Street. Shareholders can reasonably expect a growth in dividends and earnings.

Low Yielders and ICT The recent setback in markets showed that in- vestors are becoming more concerned about the attack on profit margins—witness the slower profit growth in the recent reports of Woolworth, Marks and Spencer and Boots—and more in- clined to be critical of low-yielding shares. Cer- tainly growth shares with yields of under 2 per cent. must be more carefully examined today. I have been reading a broker's bullish circular

on xi' (International Computers and Tabulators) and was frankly not convinced that I ought to buy the shares at 115s.. on a yield basis of 1.9 per cent. Although 1CT is now the largest pro- ducer of complete electro-methanical office sys- tems, it is meeting with increasing competition from EMI, English Electric, Elliott Automation and the American giant IBM, whose business in the UK is roughly equal in size to that of 1CT. As over 70 per cent. of the business of ICT' is on a rental basis, its net profits do not advance as rapidly as its customers, for the installation costs and the training of the customers: staffs have to be written off in the first year or so. The table given in this report shows that 10 of the 29j per cent. earnings last year accrued from investment allowances. If the earn- ings yield is calculated without the investment allowances, it is only 6 per cent. To be on the safe side an investor buying for growth should demand an earnings yield higher than the rate on long-dated gilt-edged stocks (now yielding about 61 per cent. to redemption).