Investment Notes
By CUSTOS
I N spite of the unsettling news from the East, the markets on the Stock Exchange have re- mained firm. Equity shares are obviously trying to go higher and even the improved electoral prospects of the Labour government have not discouraged the 'bulls.' The ICI new 71 per cent loan stock, issued at 981, has esta,blished itself at a five-point premium, with a result that the issuing houses have been quick to lower the coupon to 7 per cent for subsequent issues. BICC is offering a 7 per cent debenture at 98 (flat yield £7 Is. 5d. per cent), which should com- mand a premium of two, and DUNLOP is follow- ing with a second debenture stock on, it is thought, similar terms. DELTA METAL, which was unfortunately held up by the ICI operation, is issuing a 74 per cent debenture 1985-90 at 981. This should go to a four-point premium. These debentures are very attractive, not only for in- vestors, but for 'stags' who have losses to offset the heavy short-term capital gains tax.
Financial Shares
The turn-round in the gilt-edged market sug- gests that the financial group—banks, discount houses, merchant banks and hire-purchase finance—could be the first among the equity mar- kets to attract buyers 'for recovery.' Bank shares have never been a depressed market, for the joint-stock banks are likely to show substantially higher earnings this year and have already in- creased their interim dividends. LLOYDS especi- ally seem attractive, for they could pay 11 per cent (against 9.4 per cent) and on this basis would yield 5 per cent at 44s. The discount companies have had a very difficult time and the shares are still depressed. I favour CLIVE DISCOUNT at 37s. 6d. to yield 6.3 per cent, which is out of line with the market. The merchant banks have been out of favour for a long time. MERCURY SECURITIES, with a 50 per cent interest in War- burgs, has come down from 53s. to 43s. (low 38s.) and now yields 4.5 per cent, which is un- usually high for this share. Hire-purchase finance shares are still in the doldrums. Dear money has been mainly responsible for the set-back in earn- ings, but when a fall in Bank rate comes it may mark the turn in the profits tide. High yields can be obtained-6.0 per cent on MERCANTILE CREDIT, 6.6 per cent on LOMBARD BANKING, 7.1 per cent on BOWMAKER and 9.3 per cent on ANGLO AUTO. I hear that the Anglo Auto busi- ness has been well maintained this year; it is only dear money, putting up the cost of its borrowing to a shattering extent, and restraint on new customers, which have hit profit margins.
Distillers
A one-for-five share bonus declared by DIS- TILLERS caught the market by surprise, but, as one firm of brokers has rightly pointed out, two recent events have fundamentally changed the investment outlook for this company. First, there has been a 14 per cent increase in the export price of Scotch whisky exported in bottles; secondly, the overseas demand for Scotch has been soaring. The volume of exports in the first seven months of 1965 has risen by 15.6 per cent (against an average increase of 101 per cent over the past six years). DISTILLERS is thought to account for around 60 per cent of the total UK exports. It will be appreciated that by far the greater part of the company's profits comes from whisky. The home market, which accounts for 20 per cent of total sales, is, of course, having a difficult time as a result of the increase in taxation, but before long it usually recovers from tax restraints. For last year the company earned 24.3 per cent and paid 121 per cent. In the current year it is thought that overall trading profits could rise by at least 20 per cent, for not only are export sales of whisky rising (at higher prices), but the improvement in the chemical side has, it is hoped, been maintained. At 25s. 6d. the shares return 4.8 per cent on the 121 per cent dividend and, as this looks like being covered more than twice, there is a chance of a higher distribution.
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