WISE INVESTMENT

AT the moment rubber seems to be well set for the kind of steady rise which brings most good to producers and investors. The is. per pound mark has been safely crossed without any outburst of speculation in Mincing Lane, and, appropriately enough, Throgmorton Street has confined its enthusiasm in the share market to raising quotations by modest threepences and sixpences all round. The result is that there is at list an opportunity to look around before taking one's seat without running any great risk of being left behind. Both rubber and rubber shares may, I think, be trusted to find higher levels this year, but I shall be surprised if the rise is spectacu- larly steep. There should be ample opportunities, therefore, to pick up shares at reasonable prices, and my advice to readers is to fix theit buying limits close to the prices quoted in these notes.

North Malay Rubber 2s. shares seem as promising a pur- chase as any at 3s. 9d. on the basis of the report just issued for 1936. The net profit has risen from £13,044 to £24,041 and the dividend has been increased from 4 to 74 per cent. For 1937 standard production has been assessed at the greatly increased figure of 3,186,437 lbs., and the estimated crop is 2,612,878 lbs. at a lower f.o.b. cost of 31d. per lb. Good forward sales have been made for 1937 and 1938, and with rubber averaging only jod. per lb. I estimate that earnings on the capital will be over 20 per cent. To replenish its cash resources this company is now offering shareholders one new 2S. share for every ten held at 2s. 6d. each.

* * * * ELECTRICITY PREFERENCE YIELDS

The Preference shares of electric supply companies have fallen more than most in the recent decline of fixed-interest securities. Their close affinity with gilt-edged stocks—the ields offered were scarcely higher than on long-dated Govern- ment issues—made them unusually vulnerable, and subse- quently the McGowan Report has added to the uncertainty. There has been a good deal of selling, and in a market bare of buyers the price adjustments have been correspondingly severe. The first four shares in the group below are repre- sentative of the home electric supply preference market : No. of times dividend covered.

Clyde Valley Electric 6% Lt Current price.

s. d. Yield % £ s. d.

Cumulative Preference ..

24

29 6 4 I 3 Edmundsons Electric 6% £i

Cumulative Preference ..

61

28

o

4 5 9 Midland Counties Electric 6°,", £t Cum. Preference.. 3/ 28 0 4 5 9 Scottish Power 6% Li Cumu- lative Preference .. 31 28 3 4 4 9 Perak River Hydro-Electric

5% Li Cum. Preference..

31 21 9 412 0

The returns now available range between 4 and 41 per cent., which are not unreasonably low in view of the impregnable security behind the dividends. For investors seeking income just a little higher than that available on Government securities, I think these shares are good value for money, although I must add that prices must be expected to move in line with those of gilt-edged stocks. The Perak River Hydro-Electric Preferences, which have been segregated from the home group, are worth including in any but the most conservative investor's portfolio as a yield-sweetener. The company, under first-class British administration, supplies power, chiefly, to tin-producing undertakings, in the Federated Malay States. Its finances are sound and its revenues steadily expanding.

* * * * A CANADIAN PAPER SHARE

Still within the paper trade, but outside the newsprint section whose possibilities I have explored fairly fully in recent notes, the common shares of Howard Smith Paper Mills appear to me a worthy addition to our list of promising Canadian securities. This company has a well-established domestic and export businesi for its manufactures of book and speciality papers, and has already achieved a measure of recovery. Last year its operating profit rose from 1,889,8.47 to 2,188,030 dollars, and the net profit, after charging bond interest and depreciation, from 451,000 to 667,087 dollars. That was equivalent, allowing for Preferred dividend, to earnings of just over one dollar per share on the 274,648 common shares.

This year net profits should be increased for two reasons. The refunding of the bonded debt on a lower interest basis will save 240,000 dollars, or 85 cents per common share, and there is every likelihood, in the light of current tendencies in the trade, that the company's sales will show a further sub- stantial gain. Conservatively, I should estimate that earnings in 1937 will reach over 3 dollars on the common shares. Now quoted around 29 dollars, Howard Smith Paper common have scope for considerable improvement.

* * * * ENGINEERING WITHOUT ARMAMENTS

It is refreshing in these days to come upon an engineering concern which can produce excellent results without the benefit of rearmament contracts. From the investment stand- point, this spares a prospective buyer of the shares the somewhat disquieting feeling inevitably associated with most engineering shares today that while all may be wel this year and next, things may be very different a little later on. Last year Ransomes and Rapier, the Ipswich engineers and iron- founders, more than doubled their profits. The volume, of work in hand increased steadily throughout the year, although the works Were _not engaged in making armaments. The general reserve was raised to £x oo,000 by allocating ‘12,000 out of profits, and the Ordinary dividend was 84 per cent. tax-free, against 24 per cent, tax-free for 1935.

I am impressed by the prospects Of this company. Orders in hand are almost double those of a year ago and work on the sluices and operating machines for the Mohammed All Barrage, the order _for which has just been obtained, is to begin in the autumn and will extend until 194o. With its plant operating to full capacity the company can scarcely fail to improve still further on the excellent results achieved in 1936. Last year _ the 84 per cent, tax-free dividend was covered by available net earnings of 16 per cent., so that at 21s. the xos. shares yield over 5 per cent, gross on dividends and nearly 8 per cent, on earnings. To finance extensions an issue of new shares is to be made shortly on bonus terms.

Venturers' Corner

When I discussed the Armstrong Whitworth situation a fortnight ago I did not mention the implications for locomotive builders of the disposal of the company's Scotswood works. According to conservative people in the locomotive trade, the transfer of Armstrong Whitworth's huge capacity to armament production should effect a striking change in the outlook. Revival in the fortunes of the railway companies, both at home and abroad, is already reflected in a growth of orders, and the low level of prices, which has been the bugbear of the trade in recent years, should be materially raised with one of the principal sources of supply out of the market.

In these conditions, I regard the 54 per cent. cumulative Li Preference shares of Beyer, Peacock as a worth-while speculation at 175. Like most other locomotive builders, Beyer, Peacock and Co. has passed through lean times. Heavy overhead charges, incurred when business was at a low ebb, have involved losses, with the result that at the end of 1935 the company had an accumulated debit balance of km000 and owed L91,000 to its bank. The Preference dividend is in arrears since June 30th, 1931, equivalent to about 5s. net per share. Before dividends can be resumed the bslance-sheet will have to be ,cleared up and the liquid position improved, but behind the £360,000 of Preference capital is a further £30o,000 in Ordinary shares. Whenever the reconstruction proposals come along, I imagine that the major sacrifice will be called for from Ordinary shareholders. The Preference shares look worth holding for something over their Cupars-rvalos.ue.

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