Safe bets
PORTFOLIO
it JOHN BULL British Petroleum, after all, is not going to be allowed to buy $300 million of petrol stations in the United States from two merging com- panies, Atlantic Richfield and Sinclair Oil—or at least not until a favourable conclusion to an anti-trust trial which could last many years. So, as far as BP is concerned, the deal is off. This is disappointing news but it will not seri- ously hinder the group if it finds oil in Alaska (an announcement is expected any day). At the very worst BP could sell oil under bulk-supply contracts to existing retailers. Or it could try to buy other petrol station chains. The court has not ruled against BP'S entry into the United States market as such but against a local merger to which BP was a party. What the BP share price—up 50 per cent in a few months —depends on is finding oil. And on that score the signs are pretty encouraging. This is nor- the moment to ditch the shares from my second.1 portfolio.
C. T. Bowring and First National Finance Corporation have both, as I hoped, come through with higher offers for Bowmaker (in which I have a modest holding in my first portfolio). Unhappily for shareholders, it is far from obvious which of these two. offers should be accepted. In the first place, the value of
the competing bids is virtually the same—about 34s 3d a share. It is, therefore, important to look at the composition of the terms and at the cash alternative arrangements. The Bowring offer is roughly 12s 3d a share in immediate equity and the balance in deferred equity, that is, in convertible loan stock. The First National Finance terms provide 23s 3d a share in imme- diate equity and 1 Is a share in convertible preference shares. That inclines me to the First National Finance offer. If, on the other hand, the cash alternative arrangements are considered important, then again First National Finance has the edge with 65 per cent of its offer under- written for cash compared with 36 per cent of Bowring's.
Fundamental, though, to any decision is an assessment of which share is likely to show the most growth in the future—Bowring or First National. The Bowmaker board itself pre- fers Bowring and so does the major share- holder, Lloyds Bank. All the same, First National Finance's profit record is superior to Bowring's. And First National Finance has the advantage that it can forecast a good rise in profits this year, whereas Bowring, because of the nature of its business as an insurance broker, is unwilling to publish estimates of likely results. First National, too, has much more of a business overlap with Bowmaker so can achieve bigger cost savings. My vote, there- fore, goes to First National Finance, whose offer I shall acyept. I advise readers to follow suit.
Lonrho's latest results are right up to expec- tations, which is saying a lot as the share price has doubled in less than half a year. Pre-tax profits, helped by acquisitions, have risen from £3.6 million to £7.08 million. For the current year my guess is that the group will hit £12 million before tax with the benefit of a full Valuations at 19 February 1969 First portfolio 100 Empire Stores at 72s 6d £362 125 Phoenix Assurance at 44s 3d .. £276 330 Witan at 24s 41c1 £402 500 E. Scragg at 2Is £525 100 National & Grindlays Bank at 86s .. £430 500 Clarkson (Engineers) at 19s 9d .. £494 60 Rio Tinto Zinc at 143s 6d £430 1,000 Associated British Foods at Ils 41d £569 1,000 Jamaica Public Service at 6s 3d .. £313 500 Associated British Picture at 34s 3d £856 100 Lyons 'A' at 87s 6d £438 200 British and Commonwealth Ship- ping at 44s 4-1d .. • • £444 200 Forte's Holdings at 43s 41d £434 400 Bowmaker at 33s .. • • £660 1,000 English Calico at lOs 6d .. • • £525 Cash £143 £7,301
Deduct: expenses £234
Total £7,067 Second portfolio
600 Pillar Holdings at 19s lid.. £574
15 Kaiser Steel at £36 8s .. £546 250 Lonrho at 69s 3d £866 100 British Petroleum at 140s 6d £702 300 Vosper at 23s 9d .. £356 1,000 Allied Breweries at 20s 41d .. £1,019 Cash in hand .. . .. £1,916 £5,979 Deduct: expenses £163 Total £5,816 year's earnings from Whitehead and Ashanti Gold Mines. On that basis the shares are selling at about seventeen times prospective earnings, which is not an exalted rating. And the shares could get an extra push from a number of factors. Lonrho is still very much interested in platinum finds on the Merensky Reef. It may go into asbestos mining in Swaziland. And the diamond pipe in Lesotho is a promising development.
In sum, however, the investment points for Lonrho are two : the group has found a for- mula for making profits out of Africa despite the obvious political risks; and it has such a wide spread of promising developments that a steady stream of good news can be expected. I am a happy shareholder (my number two portfolio).
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