INVESTMENT NOTES
By CUSTOS TilE Financial Times index of industrial equities is now 4 per cent. below the top and the market is moving into a secondary reaction in a long-term bull movement. Unless the Chan- cellor gives an adequate boost to the economy in the Budget the market will go lower. The setback in the gilt-edged market has been caused by the African bad news, by the sharp rise in the discount rate to 3,A per cent. (which has probably caused the stale bulls of a lower Bank rate to cut their commitments) and by the banks' selling of invest- ments. In the prevailing uncertainties this is a good time for the private individual to buy compara- tively short-dated government stocks such as Savings 21- per cent. 1964-67. In eight years' time. or before, these bonds will be at par and at the cur- rent price of 85 this represents a tax-free profit of over I7-1 per cent. I would, however, again men- tion the current Savings Certificates at 15s. repay- able in seven years' time at 20s. which give tax- free yield of £4 3s. 10d. per cent., which is £7 6s. Per cent, gross.
Gold Shares and Chartered
The rioting in Nyasaland and a brokerage failure in Johannesburg have jointly been responsible for a setback in gold shares. This seems to be a good opportunity to buy the shares, whose dividends are bound to rise over the next two years. OFSITs, for example, should pay 5s. or 5s. 6d. this year against 4s. last, and in 1960 6s. or 6s. 6d. The Ms, shares have come back from 93s. 9d. to 89s, and offer a potential yield of either 5;6 per cent. Or 61 per cent. The company offers a wide investment spread over the best mines of the OFS. Of the actual producers the safest of the rich mines -"WESTERN IIOLDINOS-has fallen from 141s. 3d. to 134s. 6d. and at this price the potential yield is 6.65 Per cent. on the estimated 9s. dividend for the current year. Copper shares have also been sold and CHARTERED. which had been pushed up after the report to 85s. 9d. on unit trust buying, has fallen to 80s.. and at this price gives a yield of Over 61 per cent. After the tax saving which accrued last year when iho company qualified as an over- seas trading c( ation (which amounted to £2.6 million and offset the fall in profits of £2.9 'mil- lion) there is the prospect of higher revenues this Year from copper royalties on the rise in the price of the metal from £166 to £240, which. should raise Chartered's royalties by 65 per cent. The present distribution, including the special interim. k is taken as 5s. 3d., and if 5s. 6d. is paid for the current year the potential yield of 6.8 per cent. would make Chartered outstandingly cheap.
Hoover and Stores
The excellent report of licx.)vtia suggests that the specialists in durable goods are faring better than the department stores. For 1958 the gross profits of Hoover increased by 55 per cent. Turnover in- creased by only 28 per cent., which means that profit margins widened with the higher output. The dividend has been raised from 50 per cent. to 60 per cent, and earnings from 127 per cent. to 162 per cent. At 61s. 3d. to yield 4.9 per cent. the 'A' shares should he held. By contrast LEWIS IN- VESTMENT did badly to show an insignificant rise in net profits, although it is raising its dividend to 16 per cent. against 13 3/5 per cent. after the 25 per cent. scrip issue. HARRODS did worse to show a fall in gross profits and little change in the net. Some multiple stores are not much better oil. BRITISH HOME STORES reported a slight fall in trading profits, although it raised its dividend from 27-' per cent. to 41 per cent. This company, unlike Harrods, is distributing a one-in-ten scrip bonus and maintaining the new dividend rate on the larger capital. At 9s. I Id. the Is, shared yield 4.95 per cent.
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