INVESTMENT NOTES
By CUSTOS
N Monday the Stock Exchange had its busiest kj day since May, 1957, and the boom in equity shares broke fresh ground for the year—just before the rise in unemployment to 476,000 (2.2 per cent. of the labour force) was announced. The market as usual is looking forwards, not back- wards; it is discounting the trade situation next year when the re-expansion of the economy will have its effect and perhaps Is. will have been taken off income tax. Bad company reports—for example, CANADIAN EAGLE'S half-year—are being ignored and the good ones are being made the occasion for a sharp marking-up in prices. GLAXO was a case in point with a jump of 5s. to 50s. 6d. This excellently managed company reported, for the year to June 30, a rise of no less than 38 per cent. in profits before tax and 42 per cent. after tax. A quarter of the increase was due to the Allen and Hanbury profits. The reserves created by this new acquisition have enabled the company to declare a one-for-two scrip bonus. The dividend had been increased from 121 per cent. to 171 per cent., and even so this is covered nearly 41 times by earnings. At 50s. 6d. cum bonus and cum the final dividend of 11+ per cent, the shares yield about 3+ per cent. This comparatively low return is justified by the growth possibilities of this leader in the health-food industry. It would be surprising if the dividend were not again increased on the larger capital next year.
From Glaxo to Tube Investments Last week another excellent report took the market by surprise and a quick revaluation of the shares followed. This was the disclosure of higher profits by TUBE INVESTMENTS for the year to July 31. In fact, the trading results were a record and the net profits were 9 per cent. higher. Equity earnings have risen from 63.7 per cent, to 681 per cent. on slightly larger capital, and the divi- dend has been increased from 15 per cent, to 17+ per cent. A year ago Sir Ivan Stedeford, the chair- man, warned shareholders that any general decline in industrial activity would have its effect on the company, but if it can increase its profits in a year when the industrial index of production drops about 4 per cent., it ought to do well now that the Government is allowing some re-expansion to take place. The shares have risen sharply by 7s. to 70s., at which they yield close on 5 per cent. : they should be bought for the long term if the market comes back to allow 5 per cent, or over. Motor Shares
The warning given by the FORD directors, in reporting a remarkable increase of over 33+ per cent, in trading income for the half year, that re- sults in the second half of the year would be 'sub- stantially lower' than in the first half, due not only to 'seasonal influences but also to changing condi- tions especially in overseas markets,' has caused investors to wonder whether they should not cash in some of their profits in the motor share market. The warning presumably refers to the plans of the American manufacturers to make and market a small car. The Ford parent company has an- nounced that it expects to sell 20 per cent, more cars in the United States next year and that if it decides to make a small car 'we know precisely the model we will produce.' One would have thought that it would have been content to manu- facture at Dagenham, but it has been annoyed— with other American manufacturers here—by the fact that it must now pay profits tax on dividends paid to the American parent, which hitherto it escaped. Uncertainty, therefore, clouds the British Ford outlook, and although the interim dividend has been increased from 3 per cent. to 3+ per cent., indicating an increase in the total from 9 per cent. to 10 per cent., covered perhaps six times over by current earnings, the shares at 42s. to yield a poten- tial 4.8 per cent. on the basis of a 10 per cent. distri- bution are perhaps high enough for the present. The investors' preference will incline, probably, to BRITISH MOTOR, which has had an astonishing suc- cess with its new models in the overseas markets. The final dividend is due in November and the exp'ectation is that it will be increased to give much more than 121 per cent, for the year. The 5s. shares have risen to 10s., which seems to indicate 15 per cent. or more.
Corporation Mortgages Investors seeking a safety-first investment may have noticed that certain well-known municipali- ties and corporations from time to time seek new money with the purpose of pursuing their housing and drainage schemes, etc. When the Bank rate was as high as 7 per cent., it was possible to obtain short-term loans at 6 per cent. to 6f per cent., but now that the Bank rate has fallen to 4+ per cent., these loans are offered at 5+ per cent. for periods from three to ten years, which may well prove to be attractive if money rates continue to fall. There is the added advantage to the investor that the borrower pays all expenses. Thus the investor is relieved of brokerage and stamp duty charges, but these loans are not marketable, and as a rule can only be negotiated in fairly large amounts.
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