INVESTMENT NOTES
By CUSTOS
THE shortage of stock on jobbers' books caused an unseemly rise in prices when markets opened after the Christmas recess. The Financial Times index at 338.6 has now exceeded my col- league's September prophecy of 323 and it seems bound for still higher levels before Budget day unless a rise in Bank rate intervenes to check the bullishness. Ultimately the market is bound to overreach itself. Even the best of equities can be over-priced. Take the case of MARKS AND SPENCER non-voting 'A' shares which are now 21 times higher than they were in 1957. In three years this clever management has been able to raise the net
trading profits less than 50 per cent.—from E5.4 million to £7.6 million (after tax). At 75s. 6d. the market is now valuing the equity at the equivalent of twenty-seven years' purchase of their last earn- ings against only eight and a half years' purchase at one time in 1957. Fashions obviously have changed in the investment world and will change again. So beware!
Finance Shares
When the stock markets are booming, when trade is expanding and take-over bids and new issues of capital are constantly being made, the leading finance houses cannot fail to make a 'killing.' It is not, as a rule, easy for the investor to participate in this boom, for the finance house equities are either unquoted (like Morgan Grenfell or Rothschild) or very tightly held. For example, the £1 shares of MERCURY SECURITIES have risen to £15 and on the last dividend return a yield of only 1.7 per cent. This company has a majority shareholding in S. G. Warburg, perhaps the most aggressive of the City financiers, and Mr. War- burg himself is chairman. The profits Warburg's made out of the great and successful battle for British Aluminium must have been immense. Their year ends in March and last year a scrip bonus of 661 per cent, was given. If the report of a Sunday newspaper iS accurate Mercury Securities intends to split their shares and put them on a better income basis. I would be sur- prised if their last earnings of 92 per cent, were not doubled. For the rich investor these shares should be intriguing. WOOD HALL TRUST is another interesting finance equity. The company became an investment holding company in 1952 with two main subsidiaries—Sandeman's wine business including some Scotch whisky companies, and Hart Son and Company, merchant bankers. Later acquisitions were two finance companies (Scottish Assets and Holt Trust) and Davis Estates, who are contractors and estate developers in this country and Australia. The company earned 78 per cent. in the year to June last and paid 25 per cent. Much better results can be expected in the current year. At 32s. 3d. the 5s. shares are not dear to yield 3.8 per cent, on dividends and about 12 per cent. on earnings.
Critics' Choice
Reading the New Year tips in the weekend Press I was not at all impressed by some of the selections—such as VICKERS or p AND 0—or by some of the cotton textile shares. Vickers is a wonderful company but it has important ship- building and aircraft divisions which are not going to be the winners of 1960. The shipping recovery is not yet visible, and I would repeat my former switching policy—from the shipyards to the ship-breakers. METAL INDUSTRIES, Which I recommended on that account on December 11 at 69s., has now made a bid for LANCASHIRE DYNAMO. The shares are now 74s. 6d, and still attractive. As for cotton textiles, they are presently enjoying a strong recovery, but how long will this last? I would not like to back it very far except in LANCASHIRE COTTON for a while. On the whole I Would sooner take an interest in sTONE-PLATI Which is well known as the leading manufacturer of machinery for the cotton, woollen and worsted and rayon industries. This company has now branched out into other industries, making equip- ment for oil exploration, for the lighting and air- Conditioning of railway carriages and ships, for signalling, for various castings, in fact, catering for capital goods in a wide variety of trades. A substantial proportion of its sales are now outside the textile machinery field, but the reconstruction of the Lancashire cotton industry is undoubtedly mainly responsible for the better profits being earned in the year just ended, The shares at 60s. return a yield of close on 5 per cent, on the indi- cated dividend of 15 per cent, which was last covered nearly twice.
Illingworth Morris and Salts Saltaire
On November 13 I called attention to ILLING- WORTH MORRIS 4s. shares at 9s. 3d. and said that I would be disappointed if the year's distribution were not raised to 16 per- cent. It was, in fact, raised to 20 per cent. and the shares have risen to 13s. ex dividend at which they still return' the attractive yield of 6 per cent. I also said thit a combined purchase of these shares and SATs SALTAIRE at 7s. should prove profitable. filing- worth Morris were already the majority share- holder in Salts Saltaire and they have now made a bid of 8s. for the rest of the capital. My only complaint is that IM are acquiring SS much too cheaply. They upset the market in the first instance by making a 'partial' bid for SS (which is against the rules for 'LP bidders), and now they have got the SS directors' consent to sell out at 8s. Although SS, being weavers, are more speculative than 1M, 1 would have valued their shares at nearer 10s. than 8s. However, this acquisition gives IM an improved status in the wool textile market and as their earnings in the year to September last rose from 9 per cent. to 35 per cent., giving a cover for the 20 per cent. dividend of IL and as they should be still higher in the current year, follow- ing the SS acquisition, I think the shares are entitled to sell on a lower yield basis than 6 per cent. Wool is an up and down business, being dependent upon the price of the commodity, and not suitable for long-term investment, but in these days a 51 per cent, yield would be suitable, giving IM a price of over 15s.
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