Venturers' Corner
For a good example of a capital reconstruction scheme which, although very severe, is also just, examine the William Beardmore proposals. This old-established Glasgow engin- eering company is emerging at last from a long period of depression and, thanks to a substantial improvement in earnings, is taking the necessary steps to clean up its balance- sheet. The 7 per cent. First Mortgage Debentures are to be replaced by 41 per cents., and the share capital, after a drastic writing down, will consist of L1,9oo,00o divided equally into 51 per cent £r Preferences and Li Ordinaries. When the scheme has been approved, as I anticipate it will be, the company's earnings should cover the 51 per cent. Preference dividend and leave a balance of 7 per cent. on the Ordinary capital.
The existing Li second Preference shares are worth considering in the light of their position under this recon- struction plan. For every 8o shares held holders are offered 23 new Lx Preferences, plus 13 new Li Ordinaries. Now I do not know what valuation the market will put on the new shares when they are quoted after the scheme has gone through, but I suggest that i6s. for the new Preferences and 15s. for the new Ordinaries would be a conservative basis. On the board's estimate of LI50p00 as " average distributable income," the 51 per cent. Preference dividend would be well covered, so that the yield of nearly 7 per cent. at x6s. should be generous enough. The Ordinaries, at 15s., would offer an earnings yield of over 9 per cent. If these valuations are accepted—I think they will prove to be rather too low—the existing £r Preferences, at 6s. 6d., should be a good specu- lative lock-up. The allotment of new Preferences would be worth 45. 7d. and the allotment of new Ordinaries 2S. id., giving a total of 7s. per share. The prospects of the company's earnings look well assured for at least three years.
, CUSTOS.
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