LANCASHIRE COTTON RESULTS
Even on the most exacting standard I cannot award anything less than Alpha plus to the Lancashire Cotton Corporation report. The spectacular rise in income from £136,465 to L608,830 convicts my own cheerful forecasts, not of extravagance, but undue caution. Results such as these demonstrate the value of the rationalisation work which the present management, under Mr. Frank Platt, have put in. The Corporation's plant is thoroughly efficient and up-to-date, price agreements have brought a satisfactory margin of profit per unit and demand has been good enough to enable a largely increased volume of cotton yarn to be sold. The profits are sufficient, of course, not merely to cover the full 5 per cent. preference dividend and depreciation, but to leave a substantial surplus on the ordinary capital. Allowing for all prior charges, I calculate that as much as 181 per cent. has been earned for ordinary dividends. But my expectation that no ordinary dividend would be paid has proved correct. A sum of L150,000 is being transferred to general reserve, the carry forward is raised from £78,783 to £234,778, and the balance- sheet reflects a healthier financial position. To a minority of ordinary shareholders this allocation of profits will doubtless seem to savour too strongly of North-country caution, but the board's policy is surely the right one. Although spinning margins remain satisfactory, new business has fallen away since the Corporation's financial year ended on October 31st, and, amid present uncertainties, who can be sure when demand will recover ? It is, of course, this element of doubt which explains why the preference shares, with their 5 per cent. dividend covered eight times by last year's profits, are quoted around 19s. 9d., and the ordinary shares, with earnings of 18 per cent., stand at 13s. 9d. to give an earnings yield of over 25 per cent. In my view, Lancashire Cotton Corporation ordinary are not merely the best value for money in the textile share market, but are undervalued in relation. to the current year's prospects.
The preferences are an excellent investment. * * * *
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