WISE INVESTMENT

PERHAPS the most impressive feature of the current trade re- covery is its tendency to broaden out, embracing one industry after another. First, the capital constructional trades, then retail trade, followed by textiles, shipping and so on, all of which implies that the recovery has acquired the kind of momentum which means staying power. I have indicated in recent notes some of the investment possibilities in the textile and shipping trades, in both of which the signs of recovery, dimly visible a few weeks ago, have now become quite unmistakable. Which will be the next industry to join in the gradual climb from depression into some phase of pro- sperity ?

The answer, to judge from recent events in South Wales, is undoubtedly the coal-export industry. In the domestic market coal producers have been experiencing an increased demand ever since the iron and steel and cement industries began to boom, but the export trade has fallen away. Last Year the export total fell to 34,533,000 tons, a low record which compares with 60,267,000 tons in 1929. For most of the year trade was suspended with Italy ; subsidised corn- 'petition from Germany and Poland was intense ; and the French import quota was at its lowest since 1931.

The evidence of improvement, however, is now convincingly strong. Exports to Italy, France and Argentina are rising, stocks at depots have suddenly dropped to abnormally slender figures, and, most significant of all, selling prices of all important grades have been raised. * * POWELL DUFFRYN PROSPECTS

In these conditions, the £r Ordinary shares of the Powell Duffryn Steam Coal Company should provide a satisfactory :investment. This company merged its undertaking with that of Welsh Associated Collieries in 1935, the resultant operating 'company being the largest coal producing unit in the U.K. The annual capacity is over 20,000,000 tons and the current rate of output about 12,000,000 tons. Economies have been introduced in consequence of the merger and the keen com- petition previously existing between the two companies' selling organisations has been eliminated.

The last dividend of Powell Duffryn, for the year ended March 31st, 1936, was 6 per cent., so that the shares, at 24s. 6d., yield over 4i per cent. Recovery has set in so late in the current financial year that I do not look for an increase in dividend, but the outlook has definitely improved. On the basis of the current output of 12,000,000 tons the recent rise of 2S. per ton in the company's coals will, if maintained, mean an addition of £1,200,000 to gross revenue.

No. of times dividend covered Crabtree Electric 5% Li Cum.

Pref. .. 8 British Electric Transformer 5%

Li Cum. Prefs... 61 Leys Foundries 5% kr Cum. Prefs. 51

John Lysaght 6% ki First Cum.

Prefs. 15 Current price 24s.

24s. 2IS. 9d.

26s. 9d. Yield io £ s. d.

4 3 3 4 3 3

4 12 0 4 10 0

All four companies are enjoying increasing profits, and the British Electric Transformer Preferences have the additional attraction that the dividend is guaranteed by the prosperous Crompton Parkinson Company. The preference dividend of Leys Foundries, which manufactures malleable castings for the motor trade, is covered five and a half times by last year's profits, and four times by the average profits of the past ten years. The preference capital is the first charge on profits, and no debenture or mortgage can be placed in front of the preference-holders without. their consult. _ _ -

A PRIOR CHARGE GROUP The steadier tendency in gilt-edged stocks is tempting buyers back into the industrial prior charge market, but prices still look attractive in many instances in relation to the security offered. .Here is a group of shares on which there is excellent " cover "

"paw behind the dividend and the yield offered is over 4 per cent. : IMPERIAL TOBACCO BONUS POLICY I wish I could catch a glimpse of the appropriation accounts of the subsidiary undertakings of the Imperial Tobacco Com- pany. Then I could solve one of the great unsolved riddles of Throgmorton Street and say how much Imperial Tobacco ordinary shares are really worth. As things are, nobody knows, for the simple reason that, as a holding company, Imperial Tobacco includes in its published profits only such portion of the profits of the various subsidiaries as is actually declared as dividend and paid to the parent company. If, as would not surprise me, the amounts paid out as dividend are much less than are actually earned, then the Imperial Tobacco's published profits understate the earnings position.

Whatever the real earnings may be, I cannot think that Imperial Tobacco LI ordinary shares are other than cheap at the current price of £71, which is roughly £i lower than a fortnight ago. Speculators have been disappointed that the eagerly-awaited bonus is postponed and their selling has forced down the price. The mare important points are that profits established a new record, the dividend has been raised from 24 to 25 per cent. tax free, and that reserves stand at £6,75o,00o, invested outside the business in gilt-edged stocks. At £7+ the yield is practically 4 per cent. less tax, by no means unattractive on a first-class industrial share.

*

LANCASHIRE COTTON POSITION My reference to Lancashire Cotton Corporation debentures three weeks ago has been justified rather more quickly than I anticipated, the price, in its new sub-dividend form, being equivalent to just over roo, against 93 on January 22nd. The £75 nominal of new 5 per cent. Debenture is quoted at par and the balance of £25 in Preference to which holders of the old debentures have become entitled under the reorganisation plan is worth about £27, the Li Preferences standing at 2IS. 6d. each.

I see no reason why either the new debenture stock, which will get its 5 per cent. interest, or the new preference shares, should be sold. The Corporation has increased its selling prices again since I discussed the position last month, and the market's enthusiasm about the earnings prospect is strikingly reflected in the current quotation of 2IS. 6d. for the ordinary shares. As the preferences are convertible, pound for pound, into ordinary shares at any time up to 1951, they may easily stand well above their par value in twelve months' time.

* * *

Venturers' Corner

The revival in railway expenditure is already bringing welcome orders to the engine and wagon builders and manu- facturers of brakes and signalling apparatus, and there have been substantial rises in the shares of the companies con- cerned. An undertaking which seems to have attracted little attention so far is Burt, Boulton and Haywood. This com- pany carries on business as tar-distillers, creosoters, chemical and disinfectant manufacturers, coal, cement and timber merchants, and importers of railway sleepers and telegraph poles.

The business dates back to 1898 and has always paid a dividend. Before the slump the Ordinary Li shares regularly received 10 per cent. and the niarket quotation was over 3os. In recent years the rate has been down to 3i per cent., and drafts have been made on reserves, but profits recovered sharply during the year ended June 30th, 1934. The net figure, after depreciation, rose from £19,582 to £54,710, equivalent, after deducting Preference dividend, to I If per cent. on the Ordinary capital, and the Ordinary dividend was raised from 4 to 5 per cent. The £x shares are quoted at 23s. to yield nearly 4i per cent. on dividends and to per cent. on earnings. In the light of the recovery trend now apparent in the company's affairs and the excellent balance-sheet position, I think they have scope for improvement.

CUSTOS.

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