Investment Notes
By CUSTOS
APART from the shares which are involved in bids and rumours of bids the equity markets are still dull and the gilt-edged market positively nervous. There is a special reason for the latter because sterling 'has been weak and interest rates have been raised on the Continent. At the same time the market gossip is that the Chancellor will do nothing to restrain inflation- ary pressures this side of the election. On the bid front ROOTES leapt up 7s. or 8s. towards the Chrysler offer but stayed well below it. The offer is 21s. for half the `A' and 24s. 6d. for 30 per cent of the voting shares, which are quoted at the moment of-writing at 14s. 6d. and 17s. 6d. respectively. Ignoring expenses, if you buy 200 `A' costing £145, you will get £105 from Chrysler leaving you with one hundred shares costing £40 or 8s. This is only is. higher than the price which the market put on Rootes shares before the Chrysler bid was thought of but it was admittedly a speculative price based on the expectation that the company would make a big profit out of the `Imp.' As there is certainly a better chance of a profit now that Chrysler brains and expertise are behind the `Imp,' a puichase of Rootes `A' at 14s. 6d. is not a bad proposition-but still speculative.
British Motor
I agree with the City Editor of the Daily Mail that if Rootes are considered oheap BMC must be very' cheap. This lively journalist went to see Mr. George Harriman, the chairman of BMC, and elicited the fallowing facts. BMC factories are turning out about 900,000 vehicles a year (the highest company output in the country) against 748,000 this time last year, an increase of 20 per cent. Sales last year were 25 per cent up on 1962 and this year should be 18 per cent to 19 per cent up on 1963, a very rapid rate of growth. During the past year the company's share of the home market moved up from 39 per cent to 43 per cent. Exports are a third higher-1,000 vehicles a day against 750 a year ago. Profits are running ahead of last year and should go on improving. So should dividends. In the face of this bullish statement BMC shares at 15s. to yield 6-f per cent on the last dividend of 20 per cent should be a profitable investment. The high yield is explained by the fact that the market still regards the motor in- dustry as a cyclical one and likely to turn down before the end of the year, especially if there is a Labour Government. It is also somewhat alarmed at the growth of Japanese competition. But BMC is well entrenched with a wide variety of popular models-a sales policy which is now paying off-and if you are prepared to take a long enough view and, basing your calculations on the fact that over the past five years the number of car owners shows an average annual rise of 10 per cent, which is likely to continue, you should not go far wrong with an investment in the leader of the British motor industry.
Two Insurance Shares
I have suggested before that there is no need for hurry in buying the composite insurance shares but here are two which have won the distinction of actually earning their dividends. ROYAL have paid the same ls. 7d. per share and their gross interest earnings, less profits tax, have amounted to ls. 11d. per share. (Their huge fire losses have been met, of course, out of reserves.) NORTHERN AND EMPLOYERS have paid 4s. 9.6d. per share and their gross interest earnings, less profits tax, have amounted to 8s. 4d. per share. The profits -of other companies which have suffered more may show a greater recovery but in the opinion of a leading firm of brokers Northern and Employers is the most attractive share of the composite insurance group. Present market prices are: Royal 35s. 6d. to yield 4.4 per cent and Northern and Employers 61 to yield 3.8 per cent.
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