COMPANY NOTES
By CUSTOS THERE has been enough bad ,news to push the bear market farther down its course— unemployment spreading in the motor trade, new Australian import cuts, threats of strikes, warnings from company chair- men of increasing competition and lower profits, a steel strike in America and, as if the Government had not done enough injury, 36,000 tons of copper thrown on a weak market from the UK defence stock pile. A sharp reaction in copper shares fol- lowed on the weakness of industrial shares. The industrial index is now down 23 per cent. from its July, 1955, 'high' and is giving an average dividend yield of nearly 6.2 per cent. Some shares in the index will, of course, be yielding more than the average and some less. BRITISH MOTOR, for example. which is at the centre of the motor trade storm, has fallen about 50 per cent. from its 1955 high and is now giving a dividend yield of 9.9 per cent, and an earnings yield of 45+ per cent. Current earnings will be lower and the 12 per cent. dividend, last covered 4.6 times, may be cut. Even so, unless the exceptionally strong Morris- Austin group is to go down under the stress of competition for a declining trade, which is very unlikely, British Motor shares at 6s. must be near their bottom for the current trade recession. STANDARD and ROVER (which are also badly hit) are yielding less than BMC--namely, 7.7 per cent. and 9.2 per cent. respectively. ROUTES return 5.95 per cent. at present prices and eliie shares, like FORD and ROLLS-ROYCE, only 4.7 per cent. and 3.55 per cent. respectively, and JAGUAR only 3.15 per cent. The long-term 'outlook for a motor company with the automated factories of BMC is not un- favourable. The car population has nearly doubled in the last eighteen years and will go on increasing as the standard of living rises throughout the world.
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The excitement in the oil-share market has for the moment subsided, but when BRITISH PETROLEUM went over £8 last week (equivalent to £40 pre-bonus) it really seemed that a scarcity value had been reached. It must be remembered that the Treasury holds 51 per cent. of the BP equity and Burmah Oil 26+ per cent. There is. therefore, only a market in 22 million BP shares—less than Burmah's holding. When the Americans woke up to the fact that BP reserves of oil in the Middle East (estimated at 4,816 million tons) were actually greater than the entire reserves of the United States (estimated at 4,610 million tons), and were a fifth of the entire world's ,reserves, they became very excited. Brokers' circulars poured out and American buying was reported in the hundreds of thousands. The shares were written up as `the outstandingly attractive international oil investment of all time,' and it was suggested that, when the supply of BP stock dried up, American interest might turn to Burmah Oil. It I believe, already turning, and I would not be surprised to see a New York quotation for Burmah Oil before long. If Burmah Oil is the cheapest way of buying BP it must sooner or later be used by the pro- fessional investor in New York as well as in London. At the present price of 112s. 6d. for BP, the l3urmah Oil holding is worth I 1 ls. 9d. per share. Add on 10s. 9d. for the value of its holding in Shell and we get 122s. 6d. worth of oil shares in every Burmah Oil share standing at 105s. Burmah Oil in addition has trading assets which produced over £6 million in 1955, equiva- lent to about 15 per cent. on its equity capital. Before the Americans became buyers of BP, Burmah Oil used to sell in the market at a price considerably above the value of its holding in BP. It should do so again. On flat days it woulo thprefore be wise to buy Burmah Oil.
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