One-way street
PORTFOLIO JOHN BULL
The National Institute's latest Economic Review, which records the further post- ponement of balance of payments surplus, got stock markets off to a bad start this week. Sentiment is always one way in Throgmorton Street. We have all decided that we are in the middle of a thorough- going bear market and behave in a way proper to such situations, selling shares in- discriminately, ignoring the good as well as the bad new issues, letting excellent profit figures go unremarked. But when the wind changes we will buy every share in sight, assume that all new issues represent lines of cheap stock and convince ourselves that quite bad sets of figures bear favourable interpretation. Well, one tries to keep ahead of the crowd. I hope that my purchase of Bowater last week was a step in the right direction.
What I think is worth noting is how the sponsors of new issues have systematically improved the attraction of their stocks. The convertible market is particularly interest- ing in this respect. The coupon on the loan stock element (the rate of interest) rises steadily, the differential between the present market price of the equity and the price at which the loan stock can be converted at some future date has narrowed, and the period over which conversion can take place has been lengthened. The new stock issue by Philips of Holland's British subsidiary, Philips Finance, is a case in pdint. The coupon at 51 per cent is half a point better than the previous dual currency marketing (i.e. conversion is out of a sterling loan stock into a dollar, or in this instance, guilder equity). And the conversion price into Philips shares is just 6 per cent higher than today's price for the shares. The first of such issues, National Cash Register, launched some months ago, carried a 4 per cent coupon and the premium on conver- sion was 15 per cent.
Are these apparently sophisticated issues suitable for the private investor? Their attraction is that with luck they provide a cheap way into Wall Street (or any con- tinental bourse) because the amount of dollar premium payable on conversion is fixed now whereas when conversion takes place the share price should be a good deal higher than it is now (and with it the amount of dollar premium payable if you wanted to make a straight purchase of the shares). The stocks are, therefore, a bit of a gamble on the dollar premium enduring. All the same, they are stocks which should find a place in most people's portfolios. Just at the moment, though, we can afford to adopt a proper 'bear' stance, and see what discount the Philips loan goes to (particularly as it repre*nts conversion into guilders rather than dollars). Then. I sup- pose, you should look seriously at the next such convertible which comes along.
It is time for another look at the indivi- dual holdings in my two portfolios. I am
unhappy now with the Bowring equity which I acquired for my first portfolio as a result of the takeover of my holding in Bowmaker (I sold the loan stock). Unfor- tunately insurance broking has come under some pressure. The Corporation of Insur- ance Brokers has had to form a fighting committee to attack the insurance company proposals to quote premiums net of brokers' commission, which in effect would mean that brokers would have to collect their commissions direct from clients, some of whom might decide to dispense with brokers altogether. Brokers do not only stand to lose business. They would lose the use of the premiums which they collect for insurance companies and hold onto for many months, earning high rates of interest meanwhile. I have therefore sold my hold- ing in Bowring. My sympathies are with the insurance companies rather than the brokers. In any case I do not believe that the insurance companies will win this battle.
'Some £24 million knocked off the stock market value of the clearing banks' ran the headlines on Monday following the Government's 'fine' (cutting interest on government held special deposits in half). Frankly I think bank shares have become one of the most attractive sectors of the market, showing dividend yields of around 4+ per cent with the almost certain prospect of higher profits this year as interest rates edge up (the fine is peanuts in terms of their total earnings) and the more distant prospect that full disclosure of profits will become obligatory. Against these pluses you must set the fact that wage costs are rising, that heavy spending on computer systems goes on, and that high interest rates encourage a switch from current accounts to deposit accounts. All the same, the balance is favourable as far as investors are concerned. Watch this space.
Valuations at 3 June 1969 First portfolio
100 Empire Stores at 58s 6d .. £292 125 Phoenix Assurance at 33s 6d .. £209 330 Witan at 20s 3d £334 500 E. Scragg at 19s 10-fd £497 500 Clarkson (Engineers) at 18s 7141 £465 60 Rio Tinto Zinc at 131s .. £393 1,000 Associated British Foods at 9s 5;c1 .. • • £472 1,000 Jamaica Public Service at 6s 44d £319 133 Electric & Musical Industries at 53s 9d £358 100 Lyons 'A' at 84s 9d .. £424 200 British and Commonwealth Shipping at 37s. 9d. .. £378 200 Forte's Holdings at 41s 9d £417 1.000 English Calico at 9s 3d .. £462 200 Bowater at 53s £530 Cash in hand .. •• £1,123 £6,673 Deduct: expenses £260 Total £6,413 Second portfolio 600 Pillar Holdings at I7s £510 15 Kaiser Steel at £39 12s £595 250 Lonrho at 49s 3d £616 100 British Petroleum at 158s 6d £793 300 Vosper at 19s 3d £289 1,000 Allied Breweries at 18s 3d .. £912 300 J. Bibby at 30s .. .. £450
100 Burmah Oil his • • .. £585
Cash in hand .. • . £915 £5,665 Deduct: expenses £185 Total £5,480
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