FSL 1070
CITY AFFAIRS
Outlook
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● The investment environment is changing these days at a bewildering speed. No sooner was Britain's bud- get out of the way - a key element in international con fidence than Stockholm came, with the French trying to shoot down the Special Drawing Rights' (SDR's) the bankers' paper gold scheme. The fact that Frances's EEC partners split with her over this issue is signifi – cant. They put the stability of the international mone- tary system over their loyalty to an EEC partner and served notice on de Gaulle that he can ro only so far in his destructive war against the Anglo-Saxons. Ag- reement on SDR's does not solve the world's money problems, but it would have been disastrous there had been no agreement.
The Johnson bombshell really does alter the econ- omic outlook. If Vietnam peace moves succeed, then the U.S. balance of payments deficit may at last be ended. At the same time there would be a long period of readjustment on Wall Street from an economy half- geared to war to one geared to settling the problems of peace.
For the U.S. this means re-absorbing the men in Vietnam and getting to grips with the cancer of slums and civil riots. Part of what was spent on the war will be spent on improving the lot of the American poor. Economic growth should not come to a fullstop. But dollars will be spent internally, instead of abroad, to the benefit of the balance of payments.
This does not suddenly make Wall Street attractive. There are still many imponderables in the equation. European stock markets still look better. If the Amer- icans can win more room for manoeuvre in curbing their balance of payments deficit, the Europeans are likely to reflate more generously. But as stockbrokers Simon and Coates point out in their investment letter, if the Americans can now win back their own self-respect and constructive world leadership, then American business- men will be galvanised into taking their customary op- timistic view of future growth prospects.
Gilts
This week it has been the gilt-edged market's turn to make the running. Sterling's good performance fol- lowing the Stockholm agreement on SDRs led to revival of hopes for another 2% cut in Bank Rate and a good de- mand for gilt-edged right across the board. City ex- perts are suggesting a gentle rise is in prospect, pos- sibly developing into something stronger, should there be no further upsets in the international monetary field. Over the coming weeks a good deal of money may move from the short to the long end of the market.
Investment Trusts
One of the few sectors of the market which is not to be subjected to dividend limitation is investment trusts. This is logical since they are essentially a post box. passing dividends from companies to their shareholders. However, it means that those trusts with a good earn- ings cover will be able to raise their dividends, if they are so inclined. Two leading investment trusts in this happy position are Cable & Wireless and Globe Tele- graph which look very attractive at their current prices.
There are a number of points in their favour. The past growth performances of both companies are better than those of many leading trusts. This makes both stocks look undervalued on discounts of around 16%,
Both trusts
compared with the average discount of 10%. have a wide spread of investments round the world. Franked income requirements are not pressing, and neither trust will have to make large investments in preference shares to make up for the anticipated fall in their foreign income. Both companies have large liquid resources available for investment and the shares of each are easily marketable. At 25s 9d for Cable and 25s 4d for Globe, there is little to choose betwcen them.
Both are a sound investment at present levels.
Dunford
● Controlled since January last year by Wm. Brandt, the merchant bankers, Dunford and Elliott supplies steel bars and sections, rolled and treated at its own works. Dunford has about 15% of the market and its biggest customer is the motor trade.
Last December the company took over Hadfields of Sheffield which not only gives Dunford a captive supply of special steels but also brings in extra technical know- how. Hadfields is being extensively reorganised and full integration should boost Dunford's profits consid– erably. Since Dunford financed the acquisition through cash and loan stock, the full benefits of any profit re- covery in Hadfields will rebound to the benefit of Dun- ford shareholders.
Thus if Hadfields' profits were merely restored to the previous year's level of £286, 000, and Dunford maintained its own, group earnings would be 54%, ag- ainst Dunford's present share earnings of 33%. At 22s 9d this would put the shares on a price/earnings ratio of just over 8 times. They must be cheap.
Portfolio
The eighth choice for our income portfolio is the Neville Group, the Birmingham finance and issuing house. After a meteoric rise when they first went pub- lic, the shares have lately languished. Part of the rea- son is that the group is classed as an industrial holding company and they still carry a bad name in the City. Neville's profits have fluctuated over the years but over- all they have grown sharply. It is the financial side which has fluctuated most; the trading side has expand- ed steadily for ten years. The capital structure is such that it weighs against the ordinary, until profits are over the £1.1 million mark, nearly twice the average of the last five years. Nevertheless the yield is very attract- ive and is well covered, and at 13s the shares look a good income stock with the chance of material growth once profits start moving.
Bought
Income Portfolio
Giltspur Investments Hick Hargreaves Arbiter and Weston Pillar Holdings Woolworth
S. and W. Berisford Angus Steak Houses Neville Group
At
Now
Yield at Cost Price
6s 9d 6s 4 d 3s 10 d
6s lad
9.8%
6s 810
7.4%
3s Od
17.0%
9s 9d xd
10s 9 d
6.0%
17s Od
18s 2ad
5.5%
9s 3d
8s 10 d
5.8%
10s Od 13s Od
9s 9d
7.9%
8.5%
For an index to shares covered in 1967 just telephone or send a card.
Published by the Fleet Street Letter Ltd., 72 Fleet Street, London E.C.4 Printed by Collins & Walterstow Ltd., 36 Rosoman Street, London, E.C.1