Today's good deed

PORTFOLIO JOHN BULL

I am impressed by the results recently pro- duced by Clarkson (Engineers). They stand out,

like a good deed in a naughty world, from those

recently reported by the rest of the machine tool industry. And as I believe now is the time

to buy capital goods producers, in front of the substantial upturn in business which devalua- tion must surely bring, Clarkson seems an ob- vious choice. That roughly, was also the case

for John Brown, which I was lucky to spot at 27s 4.4d. The shares are now 34s 6d. With

Clarkson I am some days late into the market, but that is one of the penalties of operating at weekly intervals rather than daily—not that I am complaining, for my conditions of work exactly resemble those in which most private investors and small trustees find themselves. I have bought 500 of the voting ordinary shares at lOs 14d.

First the recent results: profits before tax in 1966-1967 up from £703,000 to £798,000, divi- dend of 30 per cent, five points up on the pre- vious year and earnings sufficient to cover the new rate nearly three times. What is the story behind this success? Over 50 pei cent of the company's products are exported; and its range, milling chucks and cutters, really throw-away tools, seem to be a great success. In fact, profits have risen in each of the last four years.

The other striking aspect of the group is the frequency with which its name has been sug- gested as a takeover prospect, though the share

price at present pays little attention to this. At the annual meeting in April last year the chair-

man said that discussions were frequently going on with various allied companies, but as far as he personally knew, nobody was trying to take the company over. He went further on that occasion: it was not possible to take the company over without the board's approval. In

the future, talks and discussions would no

doubt occur . . . possibilities would be con- sidered. And so on. Three months later the chairman admitted that he was in negotiations with one company in particular. Last week shareholders were told that those talks had been terminated. Clarkson, for the time being at least, remains independent.

With this backgrOund, steadily growing pro- fits and takeover possibilities, the arithmetic works out favourably. On the latest figures, I am buying the shares at only thirteen times earn- ings. This compares with an average of sixteen and a half times earnings for the industry as a whole. The dividend-yield is low-3 per cent —but not, I think for long.

I find the annual report of Ernest Scragg• one of the successes of the portfolio, inspiring. The chairman states that the director have very high hopes for the us, which is a completely new market for the company and which they expect will make very significant contributions to sales in the future. The order position is most satisfactory and output per month has averaged 50 per cent more than last year's rate. Extensions at both the Langley and Oldham fac- tories are now proceeding to cope with the enor- mous demand. Once the market picks up steam again, I expect Scragg to go ahead strongly. The other annual report of the week which impinges upon my portfolio is that from British American Tobacco, which has come up from 84s 3d since I bought the shares. The geo- graphical analysis shows that out of post-tax profits of £50 million, £194 million comes from the United States, £104 million from Latin America and the Caribbean, £74 million from Europe and £6 million from the United King- dom. The British interests are, of course, outside the tobacco trade (as they have to be). The chairman's speech is reserved for the meeting, so the report provides no clear pointer to the current year. All the same, the general impres- sion it creates is encouraging. I am keeping the shares.

Valuation at 28 February 1968 high hopes for the us, which is a completely 100 BAT at 102s 3d • • • £511

100 Empire Stores at 57s 6d • • • • £287

50 Phoenix at 187s 6d .. • • • £469 225 Lyle Shipping at 19s 6d • • • £219

600 John I. Jacobs at 7s 74d . • • • £228 100 Unilever at 55s .. • • £275 £2,000 War Loan at £49 5/16 • • £986 150 Witan at 31s 3d ..

100 English Electric at 50s 3d xd • • 100 E. Scragg at 67s 3d ..

250 John Brown at 34s 6d 100 Barclays Bank at '69s

200 Throgmorton Secured Growth (Capital) at 16s Old

100 National and Grindlays at 54s 9d .. 500 Clarkson (Engineers) at lOs 114 Cash with local authority at 7i per cent £5,387

Deduct: this week's expenses £6 previous expenses .. £92—£98

Total £5,289 £234 £251 f336 £431 £345 £161 £274 £253 £127