Going strong
PORTFOLIO JOHN BULL
Clarkson (Engineers) has performed very well since I bought 500 of the shares at lOs 1 fd last March. The results for the first half of the current year were good enough to put the shares 9d better to 17s 6d. Profits before tax have risen by £101,000 to £506,000 and the in- terim dividend is up from 10 to 124 per cent. The background against which these results have been produced was not exactly encourag- ing. As the directors rather kindly put it: `business activity and the economy has been quiet during the first half of the year.' Indeed, rival ,machine-tool companies have been report- ing lower profits recently. Tap and Die's profits, for instance, are on a downward slope, though the rate,of fail is not so fast as it was.
Why is Clarkson going ahead? In the first place, about half of its output is sent overseas. It is less dependent than some on the home Valuations at 18 September 1968 First portfolio 100. Empire Stores at 73s 6d • • . • £367 50 Phoenix at 187s 6d .. • • • • £469 225 Lyle Shipping at 23s • • £259 100 Unilever at 76s 4fd • • • • £382 £2,000 War Loan at £474 • • • • £950 300 Witan at 21s 14d • • £317 250 E. Scragg at 34s .. • • £425 50 Barclays Bank at 81s £202 200 Throgmorton Secured Growth (Capi- tal) at 19s 6d £195 100 National and Grindlays Bank at 63s £315 500 Clarkson (Engineers) at 17s 74d .. £441 60 Rio Tinto Zinc at 145s £435 1,000 Associated British Foods at 13s 3d £662 1,000 Jamaica Public Service at 6s lid £306 250 Associated British Picture at 42s 6d £531 Cash with local authority at 74 per cent £438 £6,694 Deduct: expenses £1'0 Total £6,534 market. Second, because of this high export ratio, devaluation must be helping the com- pany quite considerably. It will have managed to preserve its profit margins while at the same time sharpening its price competitiveness. Third, some of its overseas markets, like West Germany, have been pretty buoyant. Profits for the year will obviously be higher than the record level achieved in 1967. Clarkson is selling at roughly seventeen times prospective earnings, which is about average for the sec- tor, although it is clearly a superior firm.
Prospects for the machine-tool industry as a
whole are gradually improving. In the January to July period net new orders were 9 per cent higher than those reported for the same period of 1967. Deliveries, however, were 5 per cent down, which explains why profits figures
Second portfolio
600 Pillar Holdings at 15s 3d £457 500 Negretti and Zambra 'A' at 14s .. £350 1,000 Gallaher at 30s 9d £1,537 15 Kaiser Steel at £42 6s .. £634 250 Lonrho at 36s 6d £456 Cash in hand .. £1,940 £5,374 Deduct: expenses £110 Total £5,264 from the industry are mostly poor at- the moment. But as far as next year's profits are concerned, the key indicator is the order book rather than the level of deliveries. All the same, the industry does not yet feel that it is moving into a boom period—as it will do if devalua- tion works out successfully.
There has been something of a revival of investment interest in Phoenix Assurance, which I bought nearly eleven months ago at 141s 3d. The shares now stand at 187s 6d xd. The thought going round the market was that Phoenix would shortly receive a bid. Instead, the company announced a four-for-one scrip issue, which makes the shares a more popular price (38s); a one-for-five rights issue at 32s 6d a share; and interim profits figures for the first half of the year, which showed a marked im- provement in the fire and accident underwriting results. The dividend, also, is to be slightly higher. Phoenix's new pooling arrangement with the Continental Insurance of New York has had much to do with this; devaluation, too, has helped: Phoenix, indeed, shows refresh- ing signs of vigour at the moment. In New York it has just bought a majority holding in the Pacific Insurance Company for $28} million. The board comments: 'the eventual consolidation of the Pacific Group business with that of the Phoenix Group will mean a sub- stantial addition to United States investment income and a further improvement in the over- all profitability of operations in that territory.' Phoenix is a share to hold. And in due course I shall take up my rights.
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