WISE INVESTMENT

UNDERSTANDABLE as it is, the fresh slither in gilt-edged prices is a disappointing movement. I do not know how much French flight-money is invested in British Government stocks, but the market is merely taking the normal precautions in putting prices down now that M. Blum is beckoning so per- suasively from the other side of the Channel There is no real weakness in gilt-edged, but rather a quiet seepage of values which always proves trying to investors' nerves. I am not surprised, therefore, that many inquiries from readers take the form of variations on the theme of what is the poor gilt-edged holder to do. I wish I could give a simple answer, but so much depends on the individual investor's needs.

To safety-first investors who must protect their capital I can only repeat the advice previously given to hold only those stocks with a fairly early redemption date, thus ensuring repayment at a f.xed time at a stated price. Conversion Loan 3 per cents. and Australian 34 per cent. 1954-59 are examples of gilt-edged securities with fixed redemption dates. Nor would I discourage investors in this class from holding the shares or deposits of the leading building societies. The income yield in all these cases must be small, but I know of no other method of preserving capital values. The case of those who are anxious to obtain an income of say 31 to 4 per cent., the safety of the income being more important than minor fluctuations in the value of the capital, is different. In a period of rising interest rates there is no escape from a fall in capital values, but I will repeat my own view that the change will take place gradually. For those who can afford to venture a part of their capital outside fixed-interest securities, it seems to me that a leaven of insurance and bank %hares is quite justifiable in the present phase of investment.

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LANCASHIRE COTTON CORPORATION Cotton prices have risen sharply, but what is the effect on textile manufacturing companies ? Reports from Manchester are distinctly reassuring. Spinners are occasionally finding it difficult to get the kind of cotton they want, but on the whole they are experiencing improved conditions. The higher costs of raw material are being passed on by the yarn manufacturers, and activity in the medium and coarse American counts has increased. I suspect, therefore, that the Lan- cashire Cotton Corporation, whose attractions have previously been outlined in these notes, is doing well, holding out promising prospects both for the 5 per cent. non-cumulative preference shares at 20S. and for the ordinary shares at 17s. 3d.

Not only has the capital been drastically scaled down, but the margin of profit has subsequently improved. I do not think shareholders should worry whether the board pays the 5 per cent. preference dividend or not in respect of the year ending October 31st next. If, as I anticipate, the earnings show a big recovery, both classes of shares will stand higher later on, the ordinaries because they directly carry the equity and the preferences by virtue of their rights of conversion into ordinary shares, pound for pound, until March, 1951. In its first year after the capital scheme, the Corporation will probably choose to appropriate a substantial sum for depreciation, but it may easily pay good dividends on the whole of its capital next year.

* * * * JAVA AMALGAMATED RUBBER I hope that rubber will not join in the commodity race and begin a steep rise to is. 3d. a pound. If it does, there will be more protestings from American consumers and speculators will create the kind of unruly boom that is usually followed by • a still more disorderly slump. A steady rise is another matter, and I see no reason why, in present con- ditions of expanding consumption, rubber should not follow the upward trend of price levels by rising, in gentle stages, towards is. 3d. by the late spring. As things are, the plantation companies are not doing at all badly, and far-seeing investors, including several of the big trust companies, are accumulating shares on a twelve months' view. Yields calculated on current dividend rates are meagre, but the indicated earnings yields, which provide the real basis of valuation, are generous enough.

The ,Ct shares of Java Amalgamated Rubber, now quoted St 27$. 6d., look to MC M be as attractive as any. - - The -profits of this company rose sharply from £6,250 to £13,227 last year, and the dividend was doubled, at 5 per cent. -For 1937 the prospect • is much better. The company's coffee crop will be larger, and standard rubber production under the regulation scheme has been fixed provisionally at 1,652,384 lb., against 1,637,277 lb. in 1936. A profit of only 4d. a lb., which is a conservative estimate, on 75 per cent. of standard production, will yield the equivalent of roughly 12 per cent. on this company's capital, apart from the advantages to be derived from the devaluation of the Dutch guilder. The company has a good balance-sheet which shows an ample surplus of liquid resources and an adequate general reserve. If, as I anticipate, the rubber situation develops favourably, the shares should offer a reasonable return on this year's dividend and have scope for capital appreciation.

* * * * A HIGH-YIELDING PREFERENCE A yield of nearly 9 per cent. on a preference share, especially

in a mining company, suggests that the risk element is rather high, but I feel, all the same, that Sulphide Corporation to per cent. Li preference shares are good value for money, and only a moderately speculative investment at 22S. 9d. The dividend is non-cumulative, but has been paid in each of the past two financial years, and for the year to June 30th, 1936, the ordinary shareholders received 5 per cent. After an ordinary dividend of to per cent. has been paid, subject to the prior payment of ro per cent. on the preference, both classes of capital rank alike for any surplus profits which may be distributed.

The impressive fact is that nearly the whole of the 1935-36

profit of £91,000, which covered the to per cent. preference dividend with an ample margin, came from the company's Cockle Creek works, which produced 41,510 tons of super- phosphates, 28,609 tons of mono, 47,441 tons of limestone, 36,381 tons of cement, and other chemicals, such as hydro- chloric acid. The mine at Broken Hill, which has been the mainstay of the company in its earlier years, but is now approaching exhaustion, made scarcely any contribution to profit, as lead averaged only £15 a ton and zinc only £14, The remaining life is now estimated at three or four years which, onthe basis of the prices now ruling for lead and zinc, promise to be extraordinarily profitable.

I do not know what distribution policy the board will adopt, but I should expect, from their past conservatism, that every effort will be made to safeguard the position of the preference capital. The balance-sheet, at June 3oth, 1936, showed a large surplus of liquid assets, including cash and gilt-edged stocks, from which a repayment of a portion of the preference capital will doubtless be made at the appropriate time.

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Venturers' Corner

The rise in the big commodities—wheat, cotton, copper, tin— has overshadowed the improvement in recent months in the prices of lesser-known products, such as sisal, tobacco, and soya beans. An undertaking which should do well over the next few years is the British Central Africa Company, which owns some 34o,000 acres in Nyasaland. For the past eight years it has accumulated losses, but these were eliminated by a drastic capital reconstruction last October. The whole outlook is now immensely improved. Freight and transport charges, hitherto one of the chief handicaps to the profitable working of the estates, will be reduced by the opening of the Zambesi bridge and the extension of the Nyasaland Railways. Prices of tea, sisal and soya beans, the company's biggest crops, have moved up.

The company also buys tobacco and cotton from the native farmers and sells imported goods to them from its own stores, labour is cheap and plentiful, and it is more than an even chance that the profits for the current financial year, ending on Septem- ber 30th, 1937, will represent a satisfactory return on the IT- organised capital. The new 25. shares, which have been written down from is., are quoted at 3s. They should prove a

good commodity share speculation. CUSTOS.

[Readers' enquiries, or requests for advice, regarding particular shares will be answered periodically as space permits. Cor- respondents who do not desire their nantes to appear should append initials or a pseudonym to their questions.]