INVESTMENT NOTES
By CUSTOS
Acurious coincidence will probably make the superstitious even more convinced that ordinary shares are due for a fall whenever the yield on the Financial Times industrial index comes close to the yield on old Consols. At the beginning of last week—just before the break in markets—the gap had narrowed down to 0.05 per cent. In July, 1955, just before the collapse of that great bull market, the gap was also 0.05 per cent. But the Financial Times index is no longer repre- sentative of the fashionable shares of today. As my colleague has pointed out, the great majority of 'growth' equities have long since yielded less than gilt-edged—the best of them being on a yield basis at least one-third less than that of War Loan. But the equity market was due last week for a. technical correction. Speculation had got out of hand and in the property market some share prices had become absurd, offering yields of under 2 per cent. The sharp falls of 8s. in the voting shares of GUS, the 10s. fall in UNILEVER, and the fall of 5s. or more in some of the television rental shares indicate where speculation had become over- extended. It is usual in a bull market to have these healthy corrections. 1 doubt very much whether the present one will last long enough to carry on into the election pause. At the moment of writing there are signs of support at the lower levels. The investor will certainly not come to much harm if he follows the trades which are prosperous and the yields which arc generous. For example, sales by durable goods-shops in April were higher than a year earlier by as much as 27 per cent. This fol- lows on a 7 per cent. increase in March, 13 per cent, in February and 161 per cent. in the four months to January after the hire-purchase restric- tions had been lifted. Companies which are obviously doing exceptionally well are those engaged in furniture hire-purchase, such as 1 Isms FURNISHING at 24s. 6d. to yield 4.45 per cent. GUS are also in a strong position, but it might be advisable to wait until the dividend is declared in July for the year ending March.
Consolidated Zinc and Selection Trust
My previous recommendation of SELECTION TRUST has been justified by the report for the year to March 31. In spite of the fall in copper profits the Trust's income is slightly higher and its net income almost 15 per cent, up thanks to the cushion of its 121 per cent, holding in American Metal-Climax, whose earnings are now increasing. The 7s. dividend is repeated and is covered 1.6 times. At 116s. 3d. to yield 6.25 per cent. Selection Trust 10s. shares are the most reasonable way of retaining an interest in copper and in American recovery without too great a risk. Another base metal share which has ceased to be so dependent on the metal market is CONSOLIDATED ZINC. In spite of the fact that the price of zinc fell by nearly 40 per cent, and the profits of the Broken Hill Mine by 33+ per cent., the net income of the com- pany for the year 1958 was only 81 per cent. lower. The decline in mining profits was offset by lower royalties and tax, by the steady earnings of the smelting companies and by good dividends from investments in British Titan Products, Fisons and other companies. There is still a surplus of lead and zinc in the world markets but production is being cut back and the price of zinc has recovered from £65 to £77 a ton. A one-for-six rights issue was made last March and, as forecast, the dividend has been reduced from 18+ per cent, to 15 per cent. At the present price of 65s. 6d. the shares return only 4.57 per cent.,•but shareholders seem content to wait for the recovery in metal prices and the development of the company's long-term prospects when the huge bauxite deposits in north-west Australia are opened up in association with British Aluminium.
Minerals Separation The fall in metal (copper) dividends was offset
by industrial investments in another ease- MINERALS SEPARATION. These shares have had a substantial, rise since I recommended them on January 9, namely from 25s. 6d. to 35s. 6d. The company's profits for the year ending 1958 have risen by over 10 per cent, and the dividend is maintained at 30 per cent. But a rights issue is now announced of 3-for-22 at 15s., and when this has been done a 3-for-5 scrip bonus will be distributed, raising the capital from the existing £1 million to £2 million. The shares should undoubtedly be held.
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