1 NOVEMBER 1963, Page 29

Investment Notes


THE excellent reports received from couR- TAULDS, DUNLOP and BIRMID at the end of last week made certain that the new account this week would open on a bullish note, but what was not expected was the sharp setback in the gilt- edged market. This was due to Mr. Maudling's warning over the weekend that the expansion of the economy must not be allowed to go too fast and end up in rising prices. I am sure that the Chancellor did not intend to convey that he would have to raise Bank rate very soon, but the gilt-edged market jumped to that conclusion. When it has got over its fright a rally is bound to come, but for the time being the bull move- ment in government stock has been killed. This is a pity, for it will drive more money into the equity share markets, which are already showing signs of running ahead too fast—much more so than the economy. However, when a go-ahead company like Courtaulds reports that profits are up 30 per cent in the past six months and a slow- moving company like Dunlop follows with an 18 per cent rise, one cannot blame the market for being bullish, particularly as both these com- panies are returning dividend yields of over 4 per cent. A welcome feature has been the re- covery in such depressed markets as insurance and shipping shares. The publication of the immensely strong figures of the life companies was the occasion for the first, while the second was encouraged by a statement from the chair- man of LONDON AND OVERSEAS FREIGHTERS that the recovery in freight rates caused by the wheat shipments to Russia could extend for twelve to eighteen months.

APV Holdings

The statement issued by APV HOLDINGS with the interim dividend that profits are likely to be lower brought about a fall in the price of the shares which seems to present a good buying opportunity. The distribution for the year is to be maintained and may well be covered by a good margin of profit. The high for the year was 34s. 6d. and at the present price of 29s. the yield is 4.2 per cent on the 121 per cent dividend (last covered three times). The setback which the company has experienced is only tem- porary and current orders are reported to be at a satisfactory level. The company supplies specialist and general plant and equipment to the chemical, petroleum and petro-chemical, steel, food and drink industries. The last are evolving new chemical techniques and the company has been involved in joint research over these de- velopments. It has produced a continuous brew- ing plant which is being tried, out by Guinness. As the company's products are so much in line with modern requirements in a wide range of industries, its future should be assured. I would regard it as a growth share which has not yet received its proper valuation.

Power Companies

The government investment programme in the electricity industry involves building new generat- ing plant over the next eight years with a greater capacity than the total at present available and the first five years of this programme are esti- mated to cost £2,705 million. An interesting broker's circular I have read on the power- generating industry states that the cost of a con- ventional power station is represented 35 pet


cent by boilers and ancillary plant, 35 per cent by turbo-generators, switchgear and other elec- trical equipment' and 30 per cent by civil engineering. The shares of the boiler companies are still around half the price they reached in the 1955 boom. BABCOCK AND WILCOX at 44s. 6d. yields 4 per cent on the 9 per cent dividend, covered over twice, and JOHN THOMPSON at 20s. 3d. yields 3.6 per cent on the 15' per cent dividend, covered one and three-quarter times. (The interim dividend has been increased from 5 per cent to 6 per cent.) I have previouSly recommended the shares of the component manufacturers in the boiler industry, namely, HOPKINSONS and HICK HARGREAVES, both of which yield over 4 per cent on dividends and around 8 per cent on earnings. While the shares of the makers of electrical equipment, such- as alcc, an old recommendation, have enjoyed a con- siderable rise, the shares of, the boilermakers have lagged behind.