INVESTMENT NOTES
By CUSTOS
THE gilt-edged market responded buoyantly to the new convertibility and as this market had recently been neglected I think it should advance further. In fact, unless it does so, there is not a huge scope for a further advance in industrial equities which, on the Financial Times index, now yield a shade under 5.2 per cent. against 4.85 per cent. on old Consols. I have lately been recom- mending the medium-shorts and I still regard Conversion 51 per cent, at 98,96 to yield 5.4 per cent., and Funding 5f per cent. 1982-84 at 101.1's to yield 5.4 per cent, also as very attractive. There are still some high coupon stocks available at reasonable prices, such as Australia 51 per cent. £50 paid at 50J. ENGLISH ELECTRIC IS offering its stockholders £6 million of 5f per cent. debenture stock 1979-84 at 97, and this should be 'stagged' heavily, for a premium of 1 is almost certain for a stock offering a gross redemption yield of nearly 51 per cent. A 'rights' issue of 1.8 million ordinary shares at 50s. on a one-for-ten basis is also to be made by English Electric, and as the company expects to maintain the existing 14 per cent. dividend on the enlarged capital this also should be well received. The old shares are quoted at 61s. 6d. and if some profit-selling of the new should temporarily depress the price it would be a good opportunity to buy-on a long-term basis.
Looking Back
It has been a very profitable year for the active investor. The industrial share market on the Financial Times index has appreciated by 45 per cent. since its low point on February 25 last. Many shares have, of course, done much better than the index, as some of my recommendations have proved. A staid, respectable share like DISTILLERS has actually advanced by 70 per cent. A more speculative share (but with a very respectable business), TIMES FURNISHING, has very nearly doubled in price. Some outstanding winners in- clude BRITISH MOTOR CORPORATION, which has recovered from 6s. 74-d. to 13s. 9d.---a rise of 1071 per cent.-and ASSOCIATED BRITISH PICTURES, which has risen by over 206 per cent.-from I 5s. 9d. to 48s. 6d.-thanks to the miracle of tele- vision. Other industrial shares have not been so fortunate-it has been a very selective boom- and if you had been stuck in ASSOCIATED ELECTRI- CAL you would have enjoyed a rise of only 21 per cent. (I need hardly mention COATS, which has again excelled itself for tranquillity, having ranged from 19s. 6d. to 21s. 9d.) Perhaps the most. astonishing feature of the 1957 market has been the boom in property shares which was sparked off by the helpful revision in profits tax to a flat 10 per cent. A leading share like LAND SECURITIES has risen by 175 per cent., while a promising dark horse like CITY CENTRE has actually come up from Ils. 41d. to 47s. 6d.-by 310 per cent. It is no wonder that public interest in the Stock Exchange has been increasing.
Looking Forward
After an advance of 45 per cent. it is not to be expected that industrial shares this year will offer the same scope for appreciation. Yet I cannot see any reason why the bull market should not con- tinue, if in more leisurely fashion, provided there is no bad break in Wall Street. A further advance in the gilt-edged market would sustain a rise in the industrial index sufficient to bring the average yield down from 5.2 to, say, 4+ per cent, where it stood in July, 1955. The prospect for 1959 is for improved productivity, larger profit margins and higher profits. It is not a prospect making for an end to the bull market in industrial shares. But the market will surely remain highly selective and I can only advise extreme caution in making new purchases. The more doubtful market is in gold shares which enjoyed a rise of 21 per cent. last year mainly on American investment and con- tinental buying. The latter was partly speculative, and some operators must now be taking profits. But the American interest remains, sustained by exaggerated fears of dollar stability, or buoyed up by hopes of an eventual writing-up of the dollar price of gold.
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