COMPANY NOTES
BY CUSTOS
INfousratAt, equity shares on Wall Street have now fallen 10 per cent. from their peak this year and in the past three weeks have lost practically all the gains over the past five months. Usually these sharp setbacks end in a selling climax with a big turnover, but now that there is very little speculative trading on margin—you have to put up 75 per cent. on buying—the decline has been orderly with only a gradual increase in volume. It looks as if Wall Street will join Throgmorton Street in a mild bear market. American businessmen are still confident, we are told, that the long business boom has not been seriously threatened but only interrupted. However, stocks should come back until the earnings yields, which had become very thin, tempt the pension funds and other institutional investors to buy. Our own market came back nearly 25 per cent. before recovering nearly half its loss, and Wall Street may eventually do much the same, although at the moment it is due for a rally.
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COMPANY NOTES.—rom , from page 773 The excitement over the development of nuclear power tended to make the investor pay too high a price for the equities of companies interested in the building of the nuclear power stations. JOHN THOMPSON 5s. shares, for example, were run up to 34s. 6d. and are now 29s. 6d. to yield 4.15 per cent. on the increased dividend of 25 per cent. Due to higher taxation the net profits were slightly lower and earnings fell from 73 per cent. to 70 per cent. The profit from its engineering contract for the Dounreay nuclear power station in Scotland is still to comer It must not be forgotten that the company has a general engineering side linked up with the motor industry and also produces steel and aluminium door and window frames. On the whole I prefer its electrical associate in nuclear power development—AEI shares, which at 70s. yield 4.3 per cent. and provide a better cover for dividends (3.6 times against 2.8 times for John Thompson). There are still optimists about electrical development who will buy REYROLLE on a 3 per cent. yield basis because its dividend is covered 6.3 times.
Lord Hevworih. the chairman of UNILEVER. usually chooses an interesting thesis for his annual statement and this year he enlarged upon the importance of good management: In making long-term equity investments good management is, of course, the final test and it must be confessed that 'he big company always has this advantage over the small one—that it can afford to buy the best brains. That is why it usually pays to keep to 'blue chips.' The excellent 1955 results of the Unilever firms show that skilled management has again been at work. The old dividend of 15+ per cent. has been maintained by Unilever on capital increased by the 25 per cent. scrip bonus. Earnings amounted to 74 per cent. The balance sheet shows that reserves have risen by £23 million to £186 million against a combined equity capital of £62.4 million. This does not necessarily mean another 25 per cent. bonus. Under Dutch law tax is attracted on scrip issues made otherwise than from premiums, and Unilever NV has used up practically all its premium reserves. On the other hand it does suggest that next year Unilever can increase its dividend distributions, so that a yield of 3.95 per cent. on Unilever shares at 79s. may be considered to discount that possibility. The merit of Unilever shares as a long-term equity investment lies in the fact that the group sells throughout the world margarine, detergents, foods and toilet preparations— articles which the ordinary men and women must have in increasing quantities as the standard of living is raised.
Shareholders of SOUTH DURHAM STEEL will be delighted to learn that their Company has secured a contract worth $32 million for the supply of steel piping for the Trans- Canada gas pipe-line. South Durham shares have been hanging fire since their" issue at 27s. 6d., and at 26s. 3d. return a yield of 6.05 per cent. on dividends of 8 per cent., estimated to be covered 2.7 times. They should be worth holding. When the Canadian Parliament has finally passed the Trans-Canada Pipe-line Bill they may be seen moving up at long last.
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