WISE INVESTMENT

WRITING a week ago, " Custos " (for whom I am deputising for a brief interval), observed that the gold scare had

been pushed into. the background. By the time his words were in print, however, the precious metal had again secured the limelight and the scare became almost a panic. Happily the apprehensions were relieved last week-end by President Roosevelt's statement, although recently such reassurances have to respond to any favourable development which is a sign of a sound technical position, combined with a belief that funda- mental factors are satisfactory and will be well in time. This belief is, in my opinion, justified, but at the same time I think a constructive move of major significance, such as a currency stabilisation pact, a trade agreement between this country and U.S.A., or real improvement in the political sphere, will be needed to give markets a fillip, at any rate if much activity is to be seen before the autumn.

Electricity shares have had their own troubles to contend with in the shape of the controveries aroused by the Government's

tentative reorganisation proposals. Franidy, my own opinion is that a mountain has been made, if not out of a molehill, at any rate out of a very low ridge. No doubt the natural desire of municipal undertakings to preserve independence has been pandered to, but, all the same, the scheme has its merits, for the companies as well as the industry as a whole.

From the market point of view, however, prices are bound to be affected until the proposals take final shape and the air is cleared.

SOUND CANADIAN BONDS As a variation from discussions of preference shares giving rather better-than-average returns, I give this week a selection of Canadian railway, utility and industrial bonds. This group is, perhaps, of special interest to those investors who reside beyond the reach of the British revenue authorities, as interest is naturally paid free of United Kingdom taxes.

On the other hand, the Canadian authorities deduct a 5 per cent, revenue tax, which has been allowed for in the yields _quoted below. It will be seen that even after this deduction has been made quite attractive returns are offered.

No. of Times Current

Interest Price Yield % Covered. (Canada) k s. d.

1141 4 0 0

British Columbia Power 44% First Collateral and Refunding Bonds, 1960 • • • Dominion Tar and Chemical Co. 44% Debentures, Series A, 1951 General Steel Wares 44% First Mortgage Bonds, 1952 Price Bros. & Co. 5% First Mortgage Bonds, 1957 3 (estimated) The National Railway bonds are guaranteed by the Dominion Government, and in all the other cases interest requirements are amply covered. With one exception the names of the companies indicate their business ; the exception is Price Bros. & Co., which is one of the leading newsprint manufac- turers. One other comment is necessary : in the case of the National Railway bonds purchasers should bear in mind that

the high premium may mean a moderate loss of capital should the railway be able to redeem at par in 1956 without offering

satisfactory conversion. Allowing for this possibility, the yield to redemption is approximately £3 x is. od. per cent.

The other bonds stand below, or practically at, their redemption prices, so that this factor can be ignored.

* * * * GOOD OUTLOOK FOR OILS

Recent dividend announcements have shown that 1936 was a good year for oil companies. The Anglo-Iranian payment has been raised from 15 per cent. to 25 per cent., Burniah from 20 per cent. to 271 per cent., and Royal Dutch from 11 per cent. to i61 per cent. Shell has increased its capital Canadian National R/Y. 44% Bonds, 1956 (Dominion Guaranteed) .. 4 964 4 4 6 4 toil 4 4 6 34 961 4 9 6 took 415 o this year and, whereas the interim of 74 per cent., free of tax, was paid on the smaller capital, the final of 121 per cent. is to be paid on the larger amount. - Allowing for this, the total payment means a distribution equivalent to 224 per cent. on the former capital, which compares with 174 per cent, a year ago.

These good increases are in respect of a year in which the oil industry had the benefit of a larger output but practically no advances in prices. This year it is anticipated that con- sumption will rise 1:1T another 7 per cent. or 8 per cent., and in addition the margin of profit should be appreciably larger. The standard quotation for crude oil is up from $1.04 to $1.16, and prices of petrol and other refined products have been raised by similar amounts. In England, for example, the current price of No. i spirit is, of course, is. 7111., and a year ago was only is. 5d.

* * * .* "SHELL "—THE MARKET LEADER

Buyers of oil shares should not start trying to work out profit forecasts on the- ass-umption that these rises represent

pure gain for the companies, for costs are also soaring. Part of the increase represents higher tanker freights, although this is no great drawback to the big combines who own their own fleets. In addition,' however, wages and equipment costs are also rising, and this means that development is costing more. Nevertheless, it is reasonable .to expect that on balance there will be satisfactory margins for respectable increases in. dividends.

In these circumstances it is largely a matter of taste which of the leading oil shares ad intending purchaser picks, although I would not advise buying shares of the smaller concerns unless one has some specialised- knowledge. Amongst the leaders, my own choice would be Shell. - In the first place this is the share which first comes to mind when one thinks of this market at all, and- among British shares it can claim to be the market leader. Secondly, the group of companies jointly controlled by Shell and Royal Dutch has its fingers in every pie in the, industry, production subsidiaries in all major fields, and a world-wide distribution and marketing organisation. The dividend already mentioned is equivalent to 184 per cent., free of tax, on the present capital, and on this basis a yield of nearly 44 per cent. gross is obtained at the present price of 51.

* i * *

Venturers' Corner

Last week two coal shares were recommended for investment —Powell Duffryn and Ocean Coal and Wilsons, and reference was made to the favourable outlook for the industry in general, particularly the position in Wales. In other parts of the country, however; ptospecti are equally satisfactory, and on fields outside the Principality there has already been a con- siderable recovery. Moreover, with the sustained demand for coal for industry and export, this year may well see a general return to prosperity in the industry.

If I am right, Yorkshire Amalgamated Collieries 4s. Deferred shares at 23. gd. are an attractive speculation. The company has the reputation of being one of the best managed and best equipped in the industry, and owns collieries in the West Riding with an output of over 3,000,000 tons. No dividend has yet been paid on the Deferred shares, but these come into the picture after 8 per cent, grog's has been paid on the Ordinary capital. For the year to March 31st last, the Ordinary share- holders received 5 per cent., tax free, equivalent to 6.2/3 per cent. gross. Net earnings of the group in that year would, indeed, have covered the full 8 per cent., with a small balance available for the Deferred shares. It seems safe to forecast another rise in profits this year, so I feel justified in anticipating that their maiden dividend will be forthcoming next spring. If so, the shares should no longer be standing so much below [Readers' enquiries, or requests for advice, regarding particular shores will be* answered periodically as space permits. Corre- spondents who do not desire their names to appear should _append initials or a pseudonym to their questions. Replies to corre- spondents appear this week on page 11221