WISE INVESTMENT

EVENTS have moved rapidly since I discussed the favourable prospects of. the Canadian newsprint industry in January. Not merely have sales shown a remarkable expansion, which has enabled several companies to clear themselves of bank debt, but the International Paper and Power Company, one of the key undertakings in the trade, has announced a new basic price of 5o dollars per ton applicable to the first six months of 1938. Compared with this year's price of 42} dollars this is a marked improvement which more than fulfils the estimates I framcd three months ago. - There is still the danger that one or other of the remaining major units in the industry—I - have in mind especially the Great Northern Company in'America—may spoil the picture by undercutting, but it may be assumed that most of the bigger companies were consulted before International Paper announced its increase in price. Buyers of newsprint are bidding so keenly for supplies in most markets that I shall be surprised if pro- duction is not fully absorbed by the end of this year.

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INTERNATIONAL PAPER PROSPECTS

Meantime, International Paper and Power 7 per cent. Cumulative Preferred too-dollar shares appear to offer as attractive a medium as any through which to acquire a stake in the newsprint recovery. A capital reorganisation scheme has been formulated under which holders of these shares will receive one new 5 per cent. Preferred in exchange for the existing 7 per cents., plus one new Common share in satis- faction of accumulated dividend arrears. There will also be a right of conversion, exercisable at any time within five years from October 15th next, into common shares at the rate of one new Preferred for two and a half new Common. Now on the basis of the indicated profits for 1937 the 5 per cent. dividend on the new Preferred shares should be covered over twice, and there should be a surplus equivalent to earnings of 3 dollars per share on the written-down Common shares.

If, as now seems probable, next year's selling prices are raised to 5o dollars per ton, International Paper's earnings in 1938 would be equivalent" to at least 6 dollars on the Common. With their 5 per cent. dividend well covered, the Preferred shares seem to me to be worth at least 85 dollars to yield nearly 6 per cent., while the one Common share to be received for the arrears should be worth at least 35 dollars today, giving a combined value of 12o dollars. At present, however, the existing 7 per cent. Preferred can be bought around 107 dollars. At this price they offer scope for capital apprecia- tion, especially in view of the probability that the conversion option may become very valuable in 1938.

STORES GROUP PREFERENCES For those seeking income in the fixed-interest field there arc at present . quite a number of good Preference shares available to yield something over 41 per cent. Here is a representative selection from the stores group which seems to me to offer fair value for money :-- No. of times dividend covered.

Debenhams 61 per cent. Cumu- Current price.

s. d. Yield.

00

£ s. d.

lative Li First Preference .. 41 26 9

4 17 0

Dickins & Jones 51 per cent.

Cumulative £x Preference 41 23 9

413

Hope Brothers 51 per cent. Cumu-

lative £I Preference ..

31 23 9

4 13 0

Maple & Co. 6 per cent. Cumu-

lative LI Preference ..

3 25 9 4 I3 0 Robinson & Cleaver 5 per cent.

Cumulative Preference .. 31 22 0 4 II 0

All these companies are doing an increasing business and) I feel confident, will be able to maintain their net profits in face of a moderate rise in costs. On the basis of the latest profits the cover behind the dividends is adequate in relation to the yields and should be at least maintained this year. The

average return from an investment spread equally over the five shares would be £4 13s. 6d. per cent.

* * * A CANADIAN INVESTMENT The latest cabled messages from Canada indicate that there is no let-up in business recovery. Commodity prices, steel production, newsprint output and most of the other accepted barometers of the Dominion's trade all show rises ranging between 5 and 20 per cent. for the first two months of 1937. The recovery in Canada has now acquired such a powerful momentum that I find it hard to believe that it will not carry production to a much higher level in the next twelve months. If Nature takes a hand and provides a satisfactory wheat harvest, the general improvement may easily be spectacular.

There should be scope, in these conditions, for capital appre- ciation in the ordinary shares of the Canadian and Foreign Securities Company. This undertaking holds a well-spread portfolio, chiefly in Canadian investments, which were con- servatively valued on December 31st, 1936, at 1,714,486 dollars. It also holds the entire share capital of 25o,000 dollars in the Canadian Northern Prairie Lands and 240,000 dollars of 6 per cent. Debentures in the same company, these two holdings being carried at an aggregate figure of 490,000 dollars. Thus, the assets at the end of last year were worth roughly 2,200,003 dollars, which, after deducting the prior charges, consisting of 248,616 dollars of 4 per cent. Debentures, left a balance of approximately 1,950,000 dollars, equivalent to over 41 dollars, as the break-up value of the 450,000 Ordinary shares.

These shares are now quoted on the London Stock Exchange at Its. 9d. each, or about 6s. below their break-up value at December 31st last, since when there must have been a further rise in the value of the company's portfolio. A first dividend of 6 cents has just been declared in respect of 1936. There should be a substantial increase in income and -dividend dirt year.

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Venturers' Corner

Optimists who pitched their dividend estimates for the LampOrt and Holt Line between 5 and 6 per cent. have been disappointed, but the 6s. 8d. shares haVe held firm around us. 6d. Mr. Philip Haldin, who heads the excellent .new board which now controls this reorganised cempany,, tias wisely decided to 'conserve_ resources. Shipping conditions have improved and so have the company's profit, the net figure for 1936 having risen from £2o,00o to £43,600, but with new tonnage tinder construction the company is obviously able to use money very profitably in its business.

The significant feature of the 1936 accounts is the directors' statement that in an important section of the company's trade freight rates did not reach a remunerative level until the last three months of the year. That seems to imply that if not the whole, at least a very substantial proportion of last year's profit of £43,600 was made in the final quarter, which indicates a very high annual rate of earnings. With its fleet well written down and its finances consolidated, this company seems to me to be well placed to achieve a high level of earnings on the basis of the freight rates. now obtainable. The speculative investor willing to forgo immediate income and to take a twelve months' view should pick up the shares at today's price.

Another shipping equity which should also repay patience is the kr Ordinary share of Royal Mail Lines, the drastically written-down and reorganised company operating on the South American routes. At 26s. 3d. the shares yield only 31 per cent. on last year's 41 per cent. dividend, but the dividend .

was covered by a large margin of available earnings. The

. very _

company is pnriuing a very conservative policy in the matter

of depreciation .allowattees,_ and may have to face a fairly extensive rebuilding programme, but earnings and dividends should be suintaptiellyhigher this year than last. CUSTOS.

[Readers' enquiries, or requests for advice, regarding particular shares will be answered. periodically as space permits. Cor- respondents 4elio;410 not, desite -their names to appear should append initials or a pseudonym to their questions.]