Venturers' Corner Continuing our search among the companies which have
recently reorganised their capital structure—prima facie evidence at least of a recovery trend in earnings—we might consider the LI preference shares of the Francois Cementation Company as a speculative lock-up. Under the reconstruction scheme which has just been approved by the shareholders a holder of each LI preference will receive 16s. nominal of 6 per cent. cumulative preference, plus 3s. nominal of ordinary is. shares. The current price of the existing preferences is 14s. A buyer =1st ask himself whether his total allotment under the scheme is likely to be worth more than this sum. The answer is, I think, that he will be getting very good value for money.
The company, which undertakes shaft sinking, cemebta- tion, mine driving and similar work, now seems to have turned the corner after a number of lean years. Orders in hand have risen very sharply and the chairman has forecast with confidence that profits for the current financial year, ending March 31st, will show a further substantial improve- ment. If we estimate the net profit at L5o,000, which should be conservative, this would mean that the 6 per cent. preference dividend would be covered over three times, while there would be about 25 per cent. earned on the is. ordinaries. What valuation would this level of earnings justify for the company's shares ? Again, conservatively, I should say 17s. 6d. for the new Li 6 per cent. preferences and is. 6d. for the is. ordinaries ; thus, a holder of 16s. nominal of the new preferences and 3s. nominal of the new ordinaries would have an aggregate value of as. 6d. At the present price of 14s. the existing preferences should be worth putting away for a moderate rise in capital value and for income yield.
(Financial Notes on page 35)
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