Account gamble
Off the hard stuff
John Bull
In my opinion the only shares to go for at the moment, taking a longish-term view are blue chip companies where ratings are not discounting the effects of an upturn in the UK economy. There are several around and I believe that soon institutional investors will be turning their attention to these. But for me without being able to time the return to the market of the major buyers I have to find situations where a fluctuation in price is likely to occur in a specific account.
This is why I am recommending the selling short of Highland Distillers. The brewery, wines and spirit sector appears to be losing a lot of its appeal and a rerating could well be on the cards. After all most companies in this sector have witnessed fairly rapid growth over the last eighteen months or so and the market has not been slow to appreciate their attraction, both on trading and on rationalisation grounds. But these palmy days are drawing to a close.
Against this pessimistic background which I have painted I am prepared to take a view on Highland Distillers which will produce its full year figures for the year to end-August on about October 11.
In the interim statement last April there was reported a small increase (under 5 per cent) in pre-tax profits from £835,000 to £876,000 and the dividend was maintained at 10 per cent. At that time the directors also said that mature whisky sales were running ahead of last year and sales of new whisky had been maintained. Yet to some degree the benefits have been eaten away by the increase in costs. Not least on this front are higher wage bills and in June there were troubles with employees at Grant's whisky bottling plant. A settlement has been reached but, of course, only at a cost. Another adverse impact on profits this year could be higher interest charges. At the last year-end there was a marked deterioration in the group's liquidity position, partly due to the acquisition of Gloag in shares and £545,000 in cash, and overdrafts, in fact, stood at• £1.3 million on August 31, 1971.
What must also be remembered in reaching a forecast for the current year is that the first half benefited from a full contribution from Gloag against only four months in the comparable period in 1971. so effectively the profits at the interim stage only marginally improved.
On the plus side, in the second half there should be some benefit from reduced distilling costs, but even so I do not think that Highlands' profits will be much over C2.05 million. On this basis at 190p the shares are selling at just under twenty times earnings of 48 per cent and the historic yield is just.3.2 per cent.
First Last Account dealings dealings day Sept 18 Sept 29 Oct 10 Oct 2 Oct 13 Oct 24 Oct 16 Oct 27 Nov 7
Previous page
