Investment Notes
By CUSTOS
WHEN a market becomes temporarily over- bought, prices are extra-sensitive to bad news. Thus MITCHELLS AND BUTLERS fell 7s. to 72s. 6d. on disappointment at the terms of its merger with BASS. Again, RECKITT AND COLMAN fell 13s. 9d. to 85s. on the slight decline in profits and unchanged dividend. Leading growth stocks are not expected to behave in this fashion. Out- side the leader class BLAW KNOX, manufacturers of construction machinery, fell no less than 25 per cent. on the halving of profits and the cut in dividend from 30 per cent. to 20 per cent. BOVRIL dropped 10 per cent. to 66s. 9d. on the slight decline in profits and a dividend as forecast at 12 per cent. These untoward events should re- mind the investor that when markets become 'toppy' he should be busy switching from vulner- able to stronger positions, consolidating his posi- tion by taking profits and exchanging from the relatively high to the relatively cheap. The
brewery share market is one in which positions should now be reviewed.
The Steel Prospect An excellent review of the steel industry by a well-known firm of brokers will enable many disappointing market. If steel prices are investors to make up their minds about this very
increased to meet the rise in fuel costs, as cement and brick prices have been, the steel share market is likely to return to greater favour, and this will give the wary investor an opportunity to make some necessary switches. Briefly, demand for steel in the current year is not likely to be much higher while the output potential of steel plate and sheet steel is to be increased by over 25 per cent. This increase will be concentrated in three companies —steel plate in CONSETT and SOUTH DURHAM and sheet steel in JOHN SUMMERS—whose capacity Will be increased by over 50 per cent. These shares should therefore be left alone with the possible exception of John Summers, whose profits could expand rapidly with a further recovery in motors. For the time being I cannot see much to go for in COLVILLES, STEEL OF WALES Or STEWARTS AND LLOYDS, whose profits may be maintained but whose dividend increases will be very restrained over the next few years. THOMAS FIRTH AND JOHN BROWN, according to this broker's report, has considerable growth prospects, both from its stainless steel and from the more profitable in- vestment of its large surplus resources. LANCA- SHIRE STEEL has concentrated on wire rod, but is currently bringing in new plant to expand its ferro-concrete rod output. With no financing problems the shares are not unattractive to yield nearly 5 per cent. UNITED STEEL remains the leader of the market, but the shares, yielding only 4.6 per cent., have little to offer for the near term. That really applies to this market as a whole.
Discount Company Shares
Because no one regards discount company shares as growth stocks, comparatively high dividend yields can be obtained, but some of the houses which have just reported have secured reasonable increases in net profits, the best being KING AND SHAXSON With an exceptional increase of 50 per cent. The position seems to be that profits are adversely affected if the houses meet with one or two rises in Bank rate which depress the values of their bond portfolios and narrow the margins between the rates at which they can borrow and employ their funds, but if Bank rate is reduced and more stable conditions in the money market endure, then profits can rise. As no major funding operations are to be under- taken in the current financial year more favour- able trading conditions for the discount com- panies can be expected and, of course, growth ill profits will follow on an expansion of re- sources. Scrip issues are being made by ALLEN HARVEY AND ROSS (one-in-eleven free) and by JESSEL TOYNBEE (three-for-thirteen free), while SMITH ST. AUBYN are making a rights issue of one-in-four at par. All have forecast the mainten- ance of dividends on the enlarged capital in 1962.
Allen Harvey Price Dividend Times Div. Covered Yield and Ross .. 59s.0d.* 15 % 2.4 5.5 Jesse! Toynbee 39s. Od.* 10 % 2.7 5.1 Smith St. Aubyn 72s 6d.t 17#% 2.0 4.8 • cum rights. t ex rights.
The leader in the discount market is UNION DIS- COUNT, but at 60s. 6d. to yield just over 4 per cent. the shares seem high enough. The second largest, NATIONAL DISCOUNT, had a bad year in 1960 but is enjoying better trading this year and at 49s. to yield 5 per cent. the 'B' shares are a reasonable purchase.
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