Good yarns
PORTFOLIO JOHN BULL
Star turn of my first portfolio is the textile engineering company, Ernest Scragg. Since I bought the shares slightly less than a year ago they have quadrupled in price. My only regret is that just after they had doubled in p,rice I sold half my holding. In the past week the shares have risen by over 5s to 44s 9d in response to the group's profits figures for 1967- 68, which show an increase from £1.7 million before tax to £3 million. The dividend is 46-j- per cent against 45 per cent, an application to pay a much higher total having been refused by the Treasury. There is to be another scrip issue, this time on a one-for-one basis. But what really caught the market's imagination was the directors' statement that profits in the current year are 'exceptionally good' and that in the absence of unforeseen circumstances turnover in the current year will be approximately double that achieved in 1907-68. The directors re- called that in August the company announced an extension of production facilities and hoped these would enable delivery times to be reduced substantially so that it could take even fuller advantage of the record demand for its machines—for the processing of natural and synthetic yarns.
The question is whether or not this good news has been fully discounted in the current share price. In the first place it looks fair to assume that doubled turnover will mean doubled profits, which means that the shares are now selling at roughly thirteen to fourteen times earnings, which is modest enough. But, as I have always pointed out when writing about this share, the textile machinery makers Valuations at 11 December 1968 First portfolio 100 Empire Stores at 75s 3d .. £376 125 Phoenix Assurance at 39s 1 Id £244
£2,000 War Loan at £43.1 • •
£864 330 Witan at 26s 3d £434 250 E. Scragg at 44s 94 £559 100 National and Grindlays Bank at 73s 4-fd £367 500 Clarkson (Engineers) at 17s 9d £443 60 Rio Tinto Zinc at 148s £444 1,000 Associated British Foods at Ils 64 £575 1,000 Jamaica Public Service at 5s 64 £275 250 Associated British Picture at 61s 4R1 £767 100 Lyons 'A' at 76s 6d £382 Cash with local authority at 7 per cent £1,236 £6,966 Deduct: expenses £184 Total £6,782 Original investment £5,000 Profit £1,782
Second Portfolio £5,351 (details next Week).
have had erratic profit records because demand can fluctuate quite significantly and because one man's good invention gets overtaken by another. Scragg has taken steps to beat the cycle but it is not yet clear that it has succeeded. It is not possible yet to tell whether Scragg's calculated risk will pay off but for the time being I hold on to these shares.
The share price of Lonrho (second portfolio) has recovered in the past few days • so that I now have a modest profit on this holding. One reason is that a brokers' circular in favour of the company has been going the rounds. Its main point is that the group as it stands now is capable of an annual growth rate of 15 per cent, which means that the share price is selling at about sixteen times 1969 earnings. That is attractive considering that four possible de- velopments have not been taken into the reckoning—platinum from the company's farms on the Marensky reef in South Africa, asbestos in Swaziland, diamonds in Lesotho— or a settlement in Rhodesia.
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