Investment Notes
By CUSTOS •
ATREMENDOUS sigh of relief went up in Throgmorton Street on the Budget news. No capital gains tax and a lifting of the surtax ceiling to £4,000 (effectively £5,000 after allow- ances)—all this was more than the Stock Exchange had dared to expect. The increase in profits tax was the only disagreeable feature, bn't this can hardly affect dividends in the majority of cases where companies distribute a moderate proportion of their earnings. Property companies which distribute up to the hilt are the only group whose dividends might be adversely affected. The extra powers which the Chancellor is taking to. increase excise duties or purchase taxes could be extremely unpleasant for the consumer trades, but the Stock Exchange on the morning after did not seem disposed to take much notice of this unpleasant possibility. Second thoughts, I think, will make it more inclined to be cautious.
Budget Beneficiaries The gilt-edged market moved up sharply on the Budget proposals, as it deserved to do. Less reliance on Bank rate and less resistance to a lowering of interest rates abroad are 'bull' points for this market. The rush to buy store shares, tobacco shares, durable goods shares, etc., seemed to me foolish. All consumption goods shares are liable to be hit if Mr. Lloyd uses his powers to levy a surcharge on excise duties and purchase taxes. Investors would be wise to keep to capital goods, in particular, steel shares and the shares
of any company specialising in labour-saving equipment. For example, ICT, which I have previously recommended, moved up sharply to 101s. to yield only 2.2 per cent. Attention should be given to LAMSON INDUSTRIES, which manufac- tures calculating machines, conveyor belts, office fittings etc. This well-managed company al- creased its net profits by over 25 per cent. in the year to December, 1960, and has recently taken over George Anson, a company manufacturing office equipment, including automatic photo- copying machines. At 24s. 6d. the shares return a yield of about 31 per cent. on the 17 per cent. dividend which was last 'covered 1.8 times.
Motor Shares
JAGUAR, as you would expect, have been leading the race in motor shares, having risen 15s. in about fifteen days. One broker's circu- lar states that with the new `E' type model, the company should be able to increase its output at the rate of 15 per cent. to 20 per cent. per annum. If this proves correct, they estimate that with average profits per annum of £75 per car, earnings for the next five years should average 250 per cent. on the ordinary capital. In the year to July, 1960, the earnings were 156 per cent. and the dividend 20 per cent. A 40 per cent. pay-out ratio would give an average dividend of 100 per cent. so that the 5s. shares at the current price of 85s. would give a potential yield of nearly 6 per cent. Surely this price discounts the future pretty well. Personally I dislike following the fashion and would prefer the unfashionable WESTLAND AIRCRAFT 5s. shares at 17s. 6d. to yield 4.2 per
cent. This helicopter company is surely at a `growth' stage. In addition to helicopters it is building the naval 'Gannet' aircraft and _develop- ing the Hovercraft.
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