WISE INVESTMENT

THE Stock Exchange has lost no time in reading the major and minor implications of the loosening of restriction schemes and the widespread recovery in commodity prices. If some of the opinions expressed in Throgmorton Street seem to derive from imaginative hope rather than from reasoning, nobody will quarrel with the broad conclusion that a bigger movement of commodities on a higher plane of values must mean more freight, and probably better rates for the world's carriers. Hence the renewed interest in depressed oversea railway and shipping shares.

In the oversea rail market quotations have already risen so -sharply that I should hesitate to advise buyers to come in, but the leading shipping issues still offer opportunities to investors willing to take a two years' view. There is no doubting the revival in the shipping trade. For 1936 the average index number of freights published by the Chamber of Shipping of the United Kingdom was over 19 per cent. higher than for 1935. The index rose last month by 21 per cent. compared with November, and was 41 per cent. higher than in December of the previous year. Every important group, from European waters ( +19 per cent.) to the Red Sea, Arabia and India ( +29 per cent.) contributed to the rise.

* * * FURNESS WITHY'S PROSPECTS Rates are still below what shipowners maintain is a normal and legitimate level, but should improve further as the increasing demands of trade bear upon the much-reduced effective tonnage which has resulted from the falling-off in new building during the years of depression. I am confident, however, that even at current rates several of our most efficient shipping companies will be able to show greatly improved profits. Furness Withy stands out as an obviously attractive medium for recovery investment in the shipping market.

here is a company with a stake in virtually every trade route in the world, with its fleet in the books at a figure substantially below cost, less 5 per cent. depreciation, and important outside interests, mainly in finance and insurance. Unlike most shipping companies, Furness Withy continued building during the slump and acquired new interests at knock-out prices. The management is conservative, and no dividends have been paid since 3 per cent. was distributed in 1933. Before the slump the dividend basis was 10 per cent.

I do not anticipate that the accounts for the year ending April 30th, 1937, will permit of a dividend which will offer a generous return on the present price of 27s. 6d. for the Si Ordinary shares, but I shall be surprised if the profits do not justify a higher valuation for the shares on next year's prospects.

* * * * BUYING INCOME The slither in gilt-edged is disconcerting investors who either must, or choose to, keep a ,day-to-day vigil on capital values, but is easing the problem of those who are in the position of having to buy income in the prior charge market. Prices arc not appreciably lower, but it is less difficult to pick up good stock. Here is a group of four prior charges, all of which may be regarded as good value in their particular yield category :—

Thos. Firth & john Brown 31% No. of times covered Current Price

Yield

£ s. d.

Debentures .. 9 100 3 9 9 Oafs, Light& Coke 31% Redeem- able Prof. stock .. 2 103 3 12 9

Baldwin's 41% Cumulative £1

Preferences ..

6

20s. 9d. 4 2 6

Alpha Cement 51% Cum. £1

Preferences .. 21 24s. 4 11 9 The Baldwin Preferences look particularly attractive. The cover is ample, the company's profits are rising, and next year, when the company has redeemed its debentures, the

shares will be the firit charge oil earnings.- —

CANADIAN BANK INVESTMENTS If, as I indicated a fortnight ago, Canadian business has turned the corner, should not Canadian bank shares be promis- ing investments ? For investors who are content to loo15, for gradual and moderate capital appreciation, yes. The 100 dollar shares of the Bank of Montreal, the Royal Bank of 'Canada and the Canadian Bank of Commerce offer an attrac- . live group for a " spread " investment. On the basis of the 8 per cent. dividend paid for the last three years Bank of Montreal shares, at £48, yield just under 31 per cent. ; Royal' Bank of Canada, at £46, offer just over 31 per cent., and Canadian Bank of Commerce yield nearly 4 per cent. at £421: A purchase divided equally between the three shares would bring a yield of roughly £3 12s. 6d. per cent. : not a generou.4 yield, admittedly, if there were no likelihood of the dividend rate being stepped up. Canadian bankers, like our own, are conservative financiers, but earnings should rise before long to a level which will cover a higher dividend with a comfortable margin.

COCKSHUTT PLOUGH

Those who are prepared to forgo dividends and t ike a bolder view of Canada's recovery chances might consider Cockshutt Plough shares at 16 dollars. This company is neatly capitalised. It has no funded debt or preference shares, capital consisting solely of 300,678 common, or ordinary, shares. Again, despite the prolonged depression, which has inflicted a succession of trading losses since 1930, the financial, position is reasonably strong ; the last balance-sheet shows -a surplus of liquid assets. The accounts for the year ended November 30th, 1936, have not yet appeared, but I under- - stand that for the first time since the slump the company has succeeded in making a small profit.

I do not suggest that a resumption of dividends is an early possibility, but as one of the largest manufacturers of agricultural equipment, Cockshutt Plough should be well placed on the rota of recovery. The elimination of the wheat surplus has opened up a vastly improved prospect for the Prairie Provinces, where there must be a big banked-up demand for agricultural equipment. In the three years -1927-29 average earnings on the common shares were over 21 dollars per share, justifying a price of over 30 dollars. . There should thus be ample scope for capital appreciation if Canada's recovery restores agricultural activity to its pre- depression level.

Venturers' Corner

Like most of the base metals, copper is at present suffering from speculative profit-taking after its remarkable rise. I doubt, however, whether the reaction will go very far. Con- - sumption, if we assume that industrial recovery has still to broaden out, has not reached its peak, stocks are not unwieldy, and the potential additions to supplies from the removal of restriction will scarcely keep pace with increasing demands. On a conservative estimate, therefore, I think it is safe to budget on an average price for copper of at least £45 per ton this year.

A selling price of something around this figure is fairly adequately discounted in the quotations of the leading Rhodesian copper producers' shares, on most of which the indicated earnings yield is not more than 5 per cent. Even allowing for the smaller mining potentialities of Messina (Transvaal), which mines a low-grade ore, I regard the 5s. shares of this company as both relatively undervalued and intrinsically attractive at 25s. 6d. For the year to June 30th, 1936, production was 9,526 tons at a cost of about £30 per ton, and a 20 per cent. dividend was paid. Production is estimated at 10,000 tons for the current financial year, so that, assuming an average price of copper of £45 and costs unchanged at £30 per ton, profits should be roughly £150,000, or 60 per cent. on the capital of £250,000.

A dividend of 40 per cent. out of earnings of 60 per cent. does not seem unduly optimistic. If this expectation is fulfilled the shares would be yielding over 71 per cent.—a promising speculation on copper prospects: Cusros.