Shrewd steel
PORTFOLIO JOHN BULL
Kaiser Steel, an American share which allows a cheap way into Hammersley, the Australian iron-ore producer, has not yet justified the faith of the many London investors who bought the shares last autumn (including my- self—for my second portfolio). The price has slipped and I am showing a modest loss on my holding. 1 have, therefore, re-examined the situation. My conclusion is that Kaiser Steel remains interesting but that much inure patience is needed than I originally envisaged.
The essential facts are these. Kaiser Steel owns 36 per cent of Hammersley. This holding, worth some $450 million, amounts to $S8 for each Kaiser share, yet the Kaiser share price stands at around $65, valuing its steel manu- facturing interests fully but quite ignoring Australian possibilities. This is a commentary
on the Wall Street investment outlook. Interest there in Australian issues is at a low ebb, whereas in London we chase after every new mining issue that comes on to the market. And, of course, purely as a steel company, Kaiser Steel is not particularly attractive—or un- attractive. So the problem is, if the Americans are not much interested in Australia, can the Kaiser Steel price ever move up on account of Hammersley7 The answer is that Hammers- ley is close to dividend paying and, when it does, the figures will show up in the Kaiser Steel profits and loss account and thus auto- matically in the share price As it is, one leading firm of London brokers estimates that by 1972 Kaiser's sh4re of Hammersley's profits will amount to $2.50 a share, which compares with a present group total of $5 a share. Kaiser Steel, therefore. is for the very long haul, but worth it all the same.
I am well satisfied with the latest figures from Pillar Holdings, which more than justify the sharp rise in the share price over recent weeks (leaving me with a useful profit for my second portfolio). They show that Pillar's in- vestment at home and overseas in aluminium products is paying off handsomely. Group profits for the year to 31 October 1968 come out at £3.3 million compared with £1.9 million. This sharp rise is explained by an extra £750,000 from the growth of existing interests, £550,000 from acquisitions and £90,000 de- valuation gain on overseas earnings. And we can take this encouraging analysis a little further : profit margins expanded from 5.1 per cent to 6.3 per cent of sales. The dividend, however, is being maintained at 32f per cent.
The upshot is that at around the 19s mark the shares are selling at 16} times earnings, which is a far from fancy rating. This year Pillar should be able to get some price in- creases through, deal a final blow to the odd loss-making corners of the group, and get some useful profits out of its Canadian and German operations. My guess is that profits this year could grow by 25 per cent, which would put the shares on a price/earnings ratio of thirteen and make them look extremely cheap.
As it turns out, Bowring has won the battle for Bowmaker (I hold 400 shares in my first portfolio). I recommended the shares a few weeks ago as a short-term speculation on the outcome of the bid and as a cheap way into either of the two suitors, C. T. Bowring and First National Finance Corporation. In fact, my preference was for First National Finance and I accepted that offer. Bowring, however, has announced that it has got 78 per cent of Bowmaker and First National has conceded - defeat. What happens is that my acceptance of First National will be returned and I shall now accept the Bowring offer—a reasonable out- come in the circumstances.
Valuations at 26 February /969 First portfolio 100 Empire Stores at 66s 9d .. £334 125 Phoenix Assurance at 43s 9d £274 330 Witan at 23s 10+d .. £394 500 E. Scragg at 20s 9d £519 100 National & Grindlays Bank at 83s 6d £417 500 Clarkson (Engineers) at 20s £500 60 Rio Tinto Zinc at 138s £414 1,000 Associated British Foods at Its £550 1,000 Jamaica Public Service at 6s 3d .. £313 500 Associated British Picture at 34s 6d £862 100 Lyons 'A' at 88s £440 200 British & Commonwealth Shipping at 43s . £430 200 Forte's Holdings at 44s 6d £445 400 Bowmaker at 29s £580 1,000 English Calico at lOs 41d £519 Cash in hand .. 143 £7,134 Deduct; expenses £234 Total £6,900
Second portfolio
600 Pillar Holdings at I9s 3d .. £577 15 Kaiser Steel at £36 8s .. .. £546 250 Lonrho at 67s .. £837 100 British Petroleum at 149s 6d .. £748 300 Vosper at 24s 3d .. £364 1.000 Allied Breweries at 21s .. . . £1,050 Cash in hand . .. £1,916 £6,038 Deduct: expenses £163 Total £5,875
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