COMPANY NOTES
By CUSTOS THE gilt-edged market was cheered this week by the decision of the Government to make no conversion offer to holders of the 21 per cent. Funding stock (£503 million) due to be repaid on November 14. The Treasury disclosed that over four-fifths of the stock was now held by the Departments, leaving less than £100 million in the hands of the public. There is therefore no harm in paying the loan off in cash, although the Treasury bill issue has to be increased. With this operation over £900 million of stock will have been repaid this year and only £100 million of new 'shorts' created. The Dqpartments acquiring cash will now be buyers of the next maturity, Which is £676 million of 4 per cent. Conversion 957/58 due in June next. They will also be „sellersof longer-dated stock so that the immediate market prospect is a rise only in the 'shorts.' I like Exchequer 2 per cent. at 92-A due in Feb- ruary, 1960. This gives a gross redemption yield of 5.6 per cent, or, if the capital gain is 'grossed up' 'with tax at 8 per cent., a true redemption Yield of 8.1 per cent. If the low running yield of 2.15 per cent. does not suit the private investor he should take 44- per cent. Conversion 1962 at 931 which gives a running yield of 4.8 per cent. and a 'true' redemption yield of nearly 71 per cent. Large professional investors are, of course, not bothering with Government 'shorts' when they can obtain 7f per cent. on seven days' call'
on loans to the harassed local authorities.
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After the slide in prices last week the industrial share markets have been a little steadier and oil
shares have staged a technical recovery, but the absence of institutional buying-new insurance money being mopped up in the local authority mortgage loans-leaves the equity share markets without any firm base. The slump has bit com- modity shares badly. CONSOLIDATED zinic has fallen to 51s. 3d. against a high level of 92s. 6d. this year, a fall of 45 per cent. The company's long-term future is assured but the 30 per cent. fall in lead-zinc prices will cut sharply into its profits. It is surely madness for the Board of Trade to choose this moment to sell a lot of lead from its stockpile. Copper profits have tumbled with the copper price averaging £250 in the year to June last. After the RST dividend cuts the market is estimating the final dividend , of RHODESIAN ANGLO-AMERICAN at 5s. making 6s. 6d. for the year. Next year's distribution will be still lower with copper at £184. In fact it may be as low as 3s., so that the shares at 67s. 6d. are vul- nerable.- However, the investor must be thank- ful that the cheap, Rhodesian producers can produce copper at under £150 a ton, There is a feeling that copper, being the first of the' metals to collapse, is now touching bottom. It may be, but this is not a good time for RIO Tiwo to raise fresh money with a rights issue of one-for-six at 50s. The money is needed primarily for the Group's uranium mines in Canada. I would advise leaving the issue alone. There will be better metal share bargains before this present slide is finished.
Several good industrial reports have been re-
ceived by the market without much effect on prices. This is understandable, for if a market is busy discounting a fall in industrial profits a year hence, it is not concerned with good reports of the past six or twelve Months. The most notable was that of FORD, which is raising its interim dividend from 2-1. per cent. to 3 per cent. Profits (before tax) for the first half of this year were more than double those of the last half of -1955 and over 60 per cent. more than in the first half of 1956 when sales wqre slightly higher. This shows the effect of the higher vehicle prices (for 41, months) and the improvement in .profit margins from 71 per cent. to 111. per cent. Turn- over is for the Moment running higher but the current half-year has to bear the rise in wages which affected only two months of the previous period. Equity earnings for the year may be below the 1955 level of 44 per cent., but the dividend should be raised to 9 per cent. or even 10 per cent. against 7+ per cent, and at the current price of 31s. 9d, the yield should be either 5.6 per cent. or 61 per cent. Higher yields can be ob- tained from ROOTES or ROVER but I would prefer Ford all the time. The speculation is BRITISH MOTOR, which reported a loss in the first half of its trading. year. Will a final dividend of 84. per cent. 'be paid? The 5s. shares are quoted at 6s. 74d. The motor show is usually the time for much investment activity in the motor share market, but this year it is likely to remain quiet-except for 'switching operations.
When there is a bull market popular shares are often carried to extreme heights by the ingenious calculations of bullish' circulars. CANADIAN EAGLE and tu....ranmAa were .favourites of the statisticians and the shares were driven up to 94s. 3d. and 104s. respectively. They have now tumbled by a third or more. to 61s. and 71s. There is no official state- ment to justify even 71s. for Ultramar, but the Canadian Eagle , have issued, a satisfactory half- yearly profit statement showing a rise of over 25 per cent, in net profits after tax. The company has a stake in the .Mene Grande field in Venezuela which has been increasing its output. Its tanker earnings seem to have increased in spite of the fall in tanker freights in the second quarter. What the company really earns depends on what the Royal Dutch-Shell group decides to allow it to earn-as the difference between the price it pays in Venezuela and the price it sells in the UK and South American markets. Even at 61s, the shares yield only a little over 4 per cent. I prefer the parent SHELL which, after its heavy fall to 150s., yields 4.3 per cent.
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