COMPAN Y NOTES
BY CU
STOS
WHAT goes up with a rush generally comes down with a rush in the stock markets. Booming oil shares, which had risen on the average 50 per cent. this year, had been riding for a fall before Colonel Nasser came on the scenes and it was only a matter of time before the market woke up to the fact that there are political risks attaching to British oil investments. Piracy in the Canal Zone had not, however, been discounted. The Nasser shock caused BRITISH PETROLEUM to fall 21s. to 153s. 6d., BURMA!' OIL 17s. to 95s. and SHELL 12s. to 152s. Hundreds of millions were lopped off the oil market valuations in a few hours' trading. Has the fall been over- done? Some recovery has already occurred. Technically the market usually overdoes it when an unwieldy bull position is corrected, but there are several questions to be answered before the speculative buyer returns to oil shares. Will other Arab States try nationalisation if Nasser's piracy suc- ceeds? Will the Suez Canal dues be raised? Will British oil tankers have to be diverted to the Cape route? Will the flow of oil from the Middle East be interrupted? The investor will just have to wait and see how the political crisis develops and ends. But he should bear one point in mind. When the property of British Petroleum was confiscated by the Persian counterpart of Nasser the shares fell to about £5 in a friendless, nervous market. But if the bold investor had bought when everything looked black he would have enjoyed a rise on British Petroleum from £5 to the equivalent of £40 allowing for the subse- quent bonus. History sometimes repeats itself. But if 1 knew when the bottom had been reached I would counsel buying SHELL and ROYAL Dural because their political risks are spread throughout the world and not just centred in the Middle East. I think investors will feel a little more cautious about oil investments in future. valiantly pegging its selling prices over a wide range of its products until June, 1957, failed to escape the wave of nervous selling. GENERAL ELECTRIC, whose profits for the year to March fell 13 per cent., are now down to 55s. and yielding over 5 per cent. But once again I recommend that the opportunity of these market reversals should be used to pick up the shares of proved 'growth' quality. 1 was impressed by the 'growth' report of PYE which has been diversifying its trading by making a new range of products and specialised com- ponents and by developing new uses for radio and television in industry and ship- ping. Its large expenditure on research and new technical developments must pay out in the long run. Meanwhile its profits are slightly higher and its dividend of 121 per cent. is now five times covered. At 17s. the 'A' shares return a dividend yield of 3.7 per cent. and an earnings yield of 181 per cent.
Is it right to put DISTILLERS in the 'growth' list? It is a border-line case and the report for the year to March last does not do much to solve the mystery. It is time the directors took the shareholders more into their confidence and gave them an analysis of the earning power of their various assets. Trading profits of £211 mil- lion increased by over 9 per cent, and net profits by over 16 per cent. But how much of the trading profits is derived from whisky and gin and how much from chemicals and plastics? The great bulk, we know, is from the former: the rate of growth from the latter would appear to have been disappointing. However, income from the investment in British Petroleum Chemicals more than doubled last year at million. So there is hope of better 'growth' for the future if the directors can assure shareholders that the future profits from whisky are not to be badly affected by the exhaustion of the pre-war stocks. Earnings on the equity rose to 38 per cent. and more than covered the welcome increase in the ordinary dividend from the equivalent of 161 per cent. to 171 per cent. At 21s. the
shares return a yield of 5+ per cent., which is reasonable enough.
A yield of 8.45 per cent, is offered by BROADCAST RELAY 5s. shares at the present price of 12s. 3d. on a 12-1 per cent. tax- free dividend covered 1.4 times. This indicates the market's doubt about the com- pany's investment in commercial television through Associated Rediffusion. Total trading profits rose by 9 per cent, last year and an increasing contribution is being made by the manufacturing subsidiary. On the whole Broadcast Relay must be regarded as an essentially speculative share which will remain somewhat under a cloud until the success of ITV is assured.
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