Scragg is a bull's best friend
PORTFOLIO JOHN BULL
A'friend who had some jewellery revalued the other day told .me that diamonds were better than shares. In particular, he said, referring to the SPECTATOR portfolio, they were better than Scragg. I am not so sure. These shares have more than doubled in the few months during which they have been in the portfolio, putting on an especially inspired performance in the past ten days. The cause is the interim divi- dend (20 per cent compared with I I per cent), the promise of a 'substantially' higher final payment for the year (if legislation permits), the indication that profit figures point to a `very substantial improvement' and the decision to subdivide the 5s ordinary shares into Is units (which improves their marketability). I hear that group output of textile machinery (world-beating designs which arc sweeping all before them overseas) is running 50 per cent ahead of last year's level. And the order book, apparently, stretches for fourteen months ahead. If, let us say, profits shoot past the £2 million mark (an increase of three quarters or thereabouts) the shares would be selling at not more than twenty times earnings, which is a reasonable rating. Thus I shall keep Scragg for the time being, though I have not forgotten that profits in textile machinery have always followed a switchback course and that there will come a point when these shares should be ditched—which makes them, I sup- pose, inferior to diamonds.
Results were also announced by Lyle Ship- ping last week. Thanks to the higher freight rates which followed the Middle East war, profits before tax have risen from £424,000 to £584,000. The period covered by the latest figures is the twelve months to 28 February 1968, so only nine months of post-Suez rates are included. And as charters run out, there is a time-lag effect. So I expect I yle's new level of profitability to be fully maintained this year. The shares have done reasonably well since I bought them last autumn, showing me a modest profit. I shall hang on to them until the annual report appears. It will be easier then to see how much steam Lyle has left.
After drifting for some weeks, hank shares have suddenly perked up again and with them my holding in Barclays Bank. What has hap- pened is that a number of unofficial estimates of true clearing-bank profits hate reached the market. I say 'true' because the published `official' version is struck after undisclosed transfers to reserves, which means, broadly, that the actual net figure can be anything the board likes to make it. Brokers Phillips and Drew have long specialised in bank shares and it is to their estimates that I turn. They say that clearing-bank profits this year are likely to rise by about 20 per cent, chiefly because interest rates arc high, and that in any case the figure for subsequent years should not fall below the 1967 level. Underpinning this forecast are a series of what seem to me to be quite sensible assumptions. The basis is that deposits will continue to grow but at a slightly slower rate than previously because of the introduction of the giro. This translates out into a 20 per cent growth in deposits by the end of 1972. As for advances, it is reckoned that government restrictions will limit the ratio of advances to deposits to 53.5 per cent on average. A normal level for Bank rate is taken to be 6 per cent. Income from charges should "rise slowly again in 1969. Expenses are rising by about 6 per cent per annum.
If you take Phillips and Drew's profit figures for 1968 and marry them up with individual share prices, you see that the clearing banks are selling at about ten times earnings. In com- parison with the rest of the market, that is a very cheap rating, even allowing for the fact that profits may not rise past the 1968 level for three or four years. Phillips and Drew say that Barclays, Lloyds and Midland appear attractive. If Barclays and Lloyds are allowed to merge and to take over Martins, then the high price which will have to be paid will mar- ginally reduce the investment attractions of the bidder. The three Scottish banks are begin- ning to look slightly overpriced. But National Provincial and Westminster look fairly attrac- tive. I shall stick with Barclays for the time being, but if the share price goes any higher I shall probably take my profit.
Just over a month ago I bought 400 shares in Associated British Foods at 12s 3d. I knew then that a rights issue was intended. The terms were one new share for every ten held at a price of lOs 6d per share. I have since taken up my rights at a cost of £21. The result is that I now hold 440 shares at an average cost of 12s ld. As can be seen from the list in the next column, I have a profit of a few pence per share.
Valuation at 19 lune 1968 First portfolio
100 Empire Stores at 65s .. • • £325 50 Phoenix Assurance at 191s 3d • • £478
225 Lyle Shipping at 24s 3d .. • • £273 100 Unilever at 79s .. . • • • £395 £2,000 War Loan at £46} .. • . £937 300 Witan at 21s .. • • 1317 100 E. Scragg at 116s xd £580 250 John Brown at 46s 6d .. • . £579 100 Barclays Bank at 86s 3d £431 200 Throgmorton Secured Growth (Capital) at 18s £180 100 National and Grindlays Bank at 500 Clarkson (Engineers) at 13s 9d .. 60 Rio Tinto Zinc at 149s 6d 440 Associated British Foods at 12s 5}d Cash with local authority at 7-} per cent £6,410 Deduct: expenses £122 Total £6,288 Second portfolio 100 Guardian Assurance at 38s 6d .. £192 40 Royal Exchange Assurance at 95s £190 1,000 Brayhead at 19s 44d £969 600 Pillar Holdings at 12s 9fd £384 Cash in hand .. .. £3,792 f5,527 Deduct: expenses £48 Total £5,479 £335 £344 £448 £274 £514
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