WISE INVESTMENT

ELECTRWITY supply shares are passing through an uncomfort- able time. Having emerged, somewhat shaken and not unscathed, from a disconcerting adjustment to gilt-edged yields, they are now depressed by the vague fears aroused in 'investors' hearts by the McGowan report. " Rationalisa- tion of power distribution " sounds innocuous in itself, but /eaves an impression in some minds that one day the initial " r " may be replaced by the more terrifying " n." The amalgamation of units into larger undertakings, standardisation of voltages and frequencies, uniformity of charges, certainly point to an ultimate condition in which there will be some form of public control, especially when one remembers that three-fifths of the nation's supply undertakings are already municipally-owned.

Having made this prediction, I must add that I do not see why investors should not continue to hold electric supply ordinary shares provided they do not expect too much from them. Tice McGowan -report will be implemented slowly and only after consultation, step by step, with the under- takings, both public and private, involved. In the meantime, the companies have the benefit of a steady rise in the con- sumption curve, the benefits of which, translated into gross revenue, are only partially offset by the increased cost of coal and other raw materials. Those who argue that the companies have reached the peak of their net revenues cannot find much support in the reports for 1936 which are now appearing. Almost every company has succeeded in increasing its receipts, both gross and net, and several have raised their dividends. Bearing in 'mind the certainty of further issues of shares on bonus terms to finance expansion plans, I am convinced that electric supply ordinaries, although no longer spectacular, are still very saiisfactory investments.

* * * * - EDMUNDSONS' PROGRESSIVE POLICY

I cannot think why Edmundsons' Electricity Cr Ordinary shares should , have fallen more than most during the gilt- edged decline. They are now 41s., yielding nearly 4 per cent. on the last rate of dividend which is almost sure to be increased for the year ending March 31st, -1937. The last dividend of 8 per cent. was covered by earnings of 5I J per cent., and the interim has already been raised from 34 to 4 per cent. This company, whose finances have been - carefully handled • in the recent period of rapid development, differs from the general run of supply companies in that it is largely interested in spreading the distribution of power in rural areas, which is one of the objects of the legislation proposed in the McGowan report.

Salei of power by the Edmundsons group are rising much more rapidly than those of the industry as a whole and net revenue is- also increasing sharply, reflecting the benefits of successful rationalisation within the group. Internal finances _ are now very strong and large free reserves have been built up. It would not be surprising if part of these were capitalised and distributed to the ordinary shareholders within the next two years.

* * * * GROUP LIQUIDATION POSSIBILITIES

Having disposed of its armament and shipbuilding interests in 5935, the Armstrong Whitworth Securities Company now seems to be progressing towards an orderly liquidation. The Vickers group is to buy the company's Scotswood locomotive works, the Locomotive Builders' Association has bought the goodwill of the locomotive bUsiness,sand Or that now remains is to find -a buyer for the ironfounders subsidiary and to await the final outcome of the operations of T. & T. Assets, -the company formed. two years ago to liquidate certain other interests. The process of realising assets has a habit of dragging on, but I imagine the time is close at hand when the Armstrong Whitworth Securities Company will have some-

thing like Cizoo,000 in hard cash, apart from assets which, . _ at a rough guess, may bring in another Cx,000,000.

I do not pretend to know what the board's attitude will be, but, having kz,5oo,000 in hand, would it be illogical to approach the holders of the Preference capital, who happen to be two trust companies, and make them an offer of repayment, not at par, which they are entitled tp receive_ A,-,§ licnikdation, but

something rather less ? The trust companies, whose intention is to go into liquidation themselves as soon as they can dispose of their Armstrong Whitworth Securities preferences, would be able to wind up their job without waiting for the final liqui- dation of the Securities company, which may take another two years. Can the investor take a hand ? The safest purchase is the income debenture of the A. W. Second Stock Trust, now quoted at 556. It is backed almost pound for pound by gilt-edged stocks, and covered twice by other assets. The redemption price, induding interest arrears, is now 13o. Early repayment will therefore bring a handsome tax-free profit.

* * * * A SOUTH AFRICAN INDUSTRIAL

Turning from Canada to South Africa in our search for Empire investments, we may pause this week to consider the position of Elephant Trading Holdings. This undertaking has much more to commend it than a picturesque name • it has good management and a most impressive record of profits. The nature of the business, that of wholesale warehousemen and soft goods and general merchants, catering for both Euro- pean and native trade requirements, suggests a close correlation between profits and the general industrial prosperity of South Africa, and the actual figures bear this out. This is the story of earnings in the past four years, the periods being to June soth in each case : 1933, £68,1136-; 1934, £65,548 -1935, £71,015 ; 1936, Cio5,997, a rise of nearly 5o per cent. since 1933. Allow- ing for the Preference dividend, which requires only £16,500, the latest profit figure is equivalent to earnings of just over 22 per cent. on the Ordinary 5s. shares.

These were made available to the investor here only a year ago, and the first accounts of the holding company have not yet appeared, but it may be deduced from the declaration of an interim dividend of 7 per cent. last December that all is going well. If, as a most conservative guess, I put the final dividend at only 8 per cent., making 55 per cent. for the year, the 5s. shares, at r2s. 9d., would be yielding nearly 6 per cent., andthe dividend is payable free of South African tax, in respect of which British shareholders will be able to obtain the appropriate relief. The shares are worth holding, both for yield and capital appreciation. * * *

Venturers' Corner

On the basis of the strength of wool prices I am still impressed by the possibilities of the shares of Australian merchanting companies as recovery speculations. Just as these companies were hit by the abrupt fall in commodity prices and restriction of Australian purchasing power during the slump, so they are benefiting from the reversal of conditions now. The only important difference is in the rate of exchange, which means, of course, that profits earned in Australia are now worth less in pounds sterling and also involves an over-valuation _ of the Australian assets. Although I do not look for any early improvement in the value of the Australian pound, I am con- vinced that the recovery in actual trading is sufficient to justify purchases in this grotp for buyers willing to take a six months' view.

The 6 per• cent. Eirst Cumulative Cr Preference shares of Paterson, Laing and Bruce look tempting at 14s. In good years the 6 per cent. dividend was regularly_ met and there was enough over to cover the second preference dividend and 9 per cent. on the Ordinary shares. No dividends have been paid, however, since July, 5930, so that the first preference shares now carry nearly seven years' arrears, equivalent to over 6s. net per share. The company carries on business as merchants and warehousemen in London, Melbourne and Sydney, and is now enjoying an excellent recovery in sales. The next accounts, covering the year ending July 31St, i937, will appear in October, and I shall be surprised if they are not healthy enough to justify a scheme to tidy up the balance-sheet and enable Prefer- ence dividends to be resumed. By that time the first preference shams should show a useful advance.on today's Pike.

CusTos.

[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.]