Account gamble
Here for De Beers
John Bull
This is perhaps the worst possible climate in which to give short-term investment advice. One only has to listen to conversation in the City to realise that many operators are lying low. In fact there were many burnt fingers following the recent shake-out and I have heard that more than one broker has had to sell his house to meet commitments.
Despite this there will always be special situations worthy of attention. It is basically a question of keeping one's ears and eyes open. What I have noticed, which is not unnatural In view of the weak UK market, is the relative strength of overseas stocks. Anglo-Thai moved ahead this week, for instance, and so did Shell. Now on March 13 De Beers results are due.
The point is that from March 5 De Beers has increased its prices by 7 per cent. Now only last month, in order to offset the US devaluation the group increased its prices by 11 per cent and this followed a straight increase last September of 6 per cent.
The situation in the diamond market began to improve from July last and buying demand continued strong up to the end of last year. As an indication of this strength in Antwerp there is a premium being paid for rough diamonds, above the Central Selling Organisation (the marketing vehicle of De Beers). In the climate of such demand De Beers, producing a fifth of the world diamond ouput and undertaking to buy in most of the rest, is well placed.
Already, De Beers achieved first half earnings of 10.6p and on historic precedent more tan be expected in the final half. Thus I am going for at least 23p per share earnings against 14.5p in 1971. At 396p the PE ratio is thus 17. Admittedly, De Beers shares have performed well this year, but in the present investment climate, on the basis of much better profits and' prospects they have further to go.
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