Investment Notes
By CUSTOS
rTIHE Chancellor's optimism has been the main- ' stay of the equity markets recently, and the official statistics have been backing him up. Industrial production is at a new peak, unem- ployment is down once again to below the half- million mark and exports continue to advance strongly, being 6 per cent up on the same period of last year. The only dull spot is heavy capital equipment—as the poor half-yearly result of AEI indicates—but there are signs that even this is reviving. The steel output figures have improved —the industry is now operating at 84 per cent of capacity—and capital expenditure on vehicles is rising. At any rate, the Chancellor thinks that the economy is making 'encouraging progress' and that the turn in private investment is on the way. The eagerly 'awaited half-yearly report of Ict happily supported the. Chancellor's opti- mism. Profits are up by nearly 14 per cent and a one-for-two bonus is to be distributed. It was fortunate for the market that this announcement lived up to its expectation, for a large bull ac- count had been built up in the shares, which, as I write, closed at a new high of 70s. 3d. to yield 4.3 per cent.
Shipping
The tramp freight index 'in the first seven months of the year was 15 per cent above the 1962 monthly average and since July there has been a further sharp recovery in freights. This has been due to the chartering of vessels to bring Canadian wheat to Europe following on the massive purchases by Russia. The failure of the wheat crop in Russia. may be a turning-point in the world freight market. As tankers can'be converted easily enough to grain-carrying, it is important to note that the Tanker Recovery Scheme, which may have a beneficial effect on tanker freight rates in the short run, came into force on September 10. There is no need to rush after shipping shares, and in case the rise in freight rates is a flash in the pan, I think in- vestors might be well advised to stick to the leader, P AND 0, which has at any rate guaran- teed to go on paying a dividend of 10 per cent even if it is not covered. In point of fact, the 10 per cent dividend on the capital increased by the one-for-ten bonus is being covered this year by improved trading results. Freight is, of course, an important contributor to the com- pany's profits and so are the earnings of the company's tanker fleet, which will soon reach a total of fifteen. I would not be surprised to learn that the tankers' earnings have been carry- ing P and 0 over a bad patch. At 36s. 6d. P and 0 shares yield 5.4 per cent, which is a good enough yield for a waiting period.
Hoover Sales of washing machines and other house- hold appliances have been running 25 per 'cent to 30 per cent above last year's levels and Mr. Maudling is confident that an increase in con- sumer demand is developing. If it fails to materialise, he will no doubt cut purchase tax on household equipment in his next Budget. If this Government were only to make an end of `stop-go' policies, which cause tremendous fluc- tuations in the consumer durable trades, one of the chief beneficiaries would be HOOVER. The company's results for the current year are likely to be good. Profits were up 23 per cent, in the first six months and the recovery should at least be maintained in the second half. Earn- ings could rise to around 100 per cent and the 45 per cent dividend might possibly be raised.
The company appears to be holding its share of around one-third of the domestic washing machine market. But the competition from Rolls Razor is a threat. Rolls may have been enlarging the total market by selling cheaper machines to customers making their first pur- chase, but in the long run this competition may restrict Hoover's expansion. For the time being, the company has scored from the success of its fully automatic washing and drying machine (the Keymatic) and it has put on the market a more expensive machine, in which the wash- ing and drying units can be operated in one tub. If the next report is as good as the market anticipates, investors might then consider sell- ing. The 'A' shares at 45s. 9d., to yield 4.9 per cent, have come up from 34s. 3d. this year.
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