Investment Notes

By CUSTOS

ITHE 'bear' market in equity shares continues I and it will be interesting to see when yields begin to tempt the institutions into buying. The Financial Times index of industrial shares now yields 5.17 per cent-against 4.58 per cent six months ago. The earnings yield is 7.52 per cent- against 6.17 per cent six months ago-and should rise further as the company reports come in with higher profits. It is possible that some institutions will wait until 'the reverse yield gap' has been eliminated. War Loan at present is giving a yield of 6.2 per cent and Old Consols 6.07 per cent. As sterling has recently been weak these gilt-edged yields are tending to rise, but the dividend yield gap is not a serious basis for investment policy. The more scientific buyer of equity shares likes to see that the earnings yield is in excess of the long-term rate of interest and this has been obtainable for some time on the indices but not always on individual growth shares. Here again it is a matter of judgment. MARKS AND SPENCER give an earnings yield of 41 per cent, ELLIOTT-AUTOMATION 4 per cent, RANK 'A' 4.6 per cent and GEC 3.6 per cent, but I know investment managers ready to buy the last two-because current earnings are well in excess-of the previous year on which the earnings yields are calculated-while they are unwilling to buy the first two because earnings are not rising fast enough.

Brick Shares

Demand exceeds the ability to supply, said the chairman of LONDON BRICK. The company has just made a one-for-five scrip issue and with a dividend cover of 2.4 it should be able this year to increase its dividends slightly again. At 27s. 6d. the 5s. shares return a dividend yield of 3.1 per cent but a satisfactory earnings yield on the above test of 7.44 per cent. To improve the dividend yield an investor might couple a pur- chase of LONDON BRICK With NATIONAL STAR BRICK AND TILE which at 25s. 9d. yields 4.7 per cent. This company carried through a big devel-

opment scheme in 1963 at one of its main brick works by installing a new tunnel kiln of ' advanced design. This ran into teething troubles; but this year it should enable output to be in- creased considerably. It is thought that earnings could be 50 per cent higher, so that the shares offer a potential earnings yield of 10.8 per cent against the present 7.2 per cent.

Hire-Purchase Finance

Hire-purchase finance shares do not necessarily move with bank shares, but if there is a recovery in the latter as I suggested last week it may well spill into the former. For the half-year MERCANTILE CREDIT increased its interim divi- dend from 4 per cent to 5 per cent and looks like paying 171 per cent for the year against 15 per cent. At I5s. 6d. the 5s. shares would then. yield 5.6,per cent. ANGLO AUTO FINANCE has again produced excellent results for the half-year to April 30, group profits being up by 60 per cent. The aggregate of advances under new agree- ments showed an increase of no less than 115 per cent. Operating costs will be higher because of the rise in Bank rate,- but this will be offset by the new money received from the rights issue. An interim dividend of 171 per cent has been declared on capital doubled by the rights issue and a minimum total for the year of 35 per cent has been forecast. This will prob- ably be increased, but on the basis of 35 per cent the Is. shares at 6s. 9d. yield over 5.2 per cent. With a 40 per cent dividend the yield would be 5.9 per cent.

Brewery Shares

"The cotamai group have announced an in- crease of Id, per pint in the price of bitter. This suggests that the breweries will be able to pass on the higher beer tax without affecting the volume of their business. Turnover in public houses in the first quarter of this year \Vas up by about 15 per cent. The exceedingly hot weather in May .obviously improved sales and it looks as if the breweries will have an outstandingly

good year. Apart from beer consumption, the demand for wine is fast increasing. British wine consumption has actually risen by more than 30 per cent between 1960 and 1963. As the results of the recent mergers have not yet been fully realised, the large brewery groups can still

be regarded as defensive investments. The highest Yields arc obtainable from ALLIED BREWERIES and CHARRINGTONS. ALLIED iS the largest of the mergers, with 8,700 public houses and hotels. CHARRINGTONS is next with 5,000. WHITBREAD is

no longer pursuing its old policy of acquiring interests in other brewery companies, but this policy has led to smooth takeovers in the past and

could lead to more. It has 3,400 public houses and 9,500 outlets through other brewers' houses, together with a big club and restaurant trade and

a large export business.

Divi- dend Times Yield Price % Covered %

Allied Breweries 5/- .. 13/101 13 1.6 4.6 Charrington United 5/- 14/- 131 1.6 4.5

Whitbread 5/- .. 17/6 16 1.8 4.5