WISE INVESTMENT

NOT having believed in either the much-proclaimed perman- ence or the desirability of abnormally low money rates, I cannot join wholeheartedly in the City's Lament on the Gilt- edged Market. Nor do I consider that investors need interpret too tragically the beginning of a hardening process in interest rates which is likely to continue so long as the trade recovery broadens out. Safety-first investors to whom the maintenance of capital values is more important than income can still protect themselves by confining their purchases to stocks which have fixed redemption dates, preferably, of course, not very far ahead. But they must be prepared to accept com- paratively small income-yields.

Investors who find it necessary to "buy income" on a rather more liberal scale than is obtainable on dated gilt-edged stocks, and are therefore less concerned with year-to-year fluctuations in capital values of their holdings, may feel in- clined to hold off now that prices have begun to ease. I doubt, all the same, whether any further fall in quotations suflicient to justify a waiting policy is in early prospect.

* * * * OVER FOUR PER CENT.

The lowering of quotations in the prior charge market has, in fact, already uncovered quite a number of bargains, many issues being obtainable at prices which offer distinctly attrac- tive yields in relation to the security offered. Here is a selection of five, all of which yield 4 per cent. or more :- L.M.S. 4% Guaranteed £100

No. of times dividend covered

Current price Yield £ s. d.

Preference 5f 100 4 0 0 L.M.S. 4% First Pref. £100 stock 3 871 4 12 0 Unilever 5% £1 Cum. Pref. shares 17 24s. 3d. 4 2 6 Powell Duffryn Associated Collier- ies 4f% £1 Cum. Profs. .. 7 20s. 4 15 0

Baldwin's 41% £1 Cumulative

Preis. . 3 20s. 71d.

4 2 6

The cover available in each ease is ample and should be strengthened in consequence of increasing earnings this year. The average return from this group is £4 6s. (kl. per cent.

* * * * RICHARD THOMAS DEBENTURES For the moment my recommendations of the Preference and Ordinary shares of Richard Thomas & Co., the steel and tin-plate combine, seem to have gone slightly astray, but I am unrepentant. The ill-success of the company's huge issue of 4 per cent. debenture stock has been due not to any weak- ness in the earnings position, but merely to technical condi- tions in the gilt-edged market. At a price of 3 discount, equivalent to 961 on a fully-paid basis, Richard Thomas debentures are worth buying for a well-secured yield of £4 3s. per cent. Against the annual interest requirement of £280,000 available profits last year were 1848,000, and this cover will be increased to 1950,000 during the year ending March 31st, 1937.

At the moment, with the Ordinary shares quoted at 14s. 3d., the right of the debenture-holders to convert their stock at the equivalent of 20s. for the Ordinaries is obviously only of academic interest. But it may easily become valuable within the next two years. I am prepared to share the chairman's confidence that, given reasonably satisfactory trading conditions, profits should reach a figure which will justify something more than a price of 20s. for the Ordinary shares when the new plant gets into its .stride. * * * * A PROGRESSIVE CHAIN STORES Investors who are impressed by South Africa's growing prosperity—and who is not ?—have an excellent medium for staking a claim in a further expansion of spending power in the Zs. shares of O.K. Bazaars. Here is a well-managed cliaia-::tore undertaking, with its branches so distributed geographically as to benefit from virtually every aspect of South Africa's business -recovery. Apart from its larger branchek in Johannesburg, Pretoria, Capetown and Durban, the company has recently opened establishments in the smaller centres of industry, and is meeting with considerable success. It has also acquired a controlling interest, on attractive terms, in a competitive stores. Earnings are following a rising curve. For the year ended June 30th, 1986, the net profit was £201,461, and a 55 per cent. dividend was paid out of available profits equivalent to 65 per cent. on the capital, since when a further 240,000 new 5s. " B " shares have been issued at 41s. each to finance extensions. The success already achieved in pursuing this enterprising policy is indicated in the raising of the interim dividend for the current financial year from 20 to 25 percent:, and the directors' statement that " turnover for the six months ended December 31st last was 25 per cent. higher than in the corresponding period of 1935."

The new 5s. " B " shares of O.K. Bazaars, which rank for the final dividend payable in respect of the year ending on June 30th next, are quoted at 51s. If, as I anticipate, the total dividend is increased from 55 to 65 per cent., the indicated yield is nearly 64 per cent., without allowing for the special arrangements which reduce the tax deduction to 2s. (id. in the £. I regard the shares as a progressive S. African industrial with scope for improvement over the next few months.

* * * * STEEL COMPANY OF CANADA Continuing our search for promising Canadian investments, we might glance this week at Canada's steel industry. Quanti- tatively, this branch of activity is not large, its output amount- ing to about 10 per cent. of steel production in this country, but it follows the same trend. For the first ten months of 1936, steel output in Canada rose by 22 per cent., and the figures are still increasing. As constructional activity gets under way, I look for a further considerable expansion, which means that Steel Company of Canada should do well. This group produces a wide range of products, from sheets and billets to car axles, and brought its modernised sheet mills into operation only last year.

The dividend on the Ordinary shares consists of regular payments, maintained in 1936 at 12- dollars per share, plus extra dividends, paid before the Preference holders begin to exercise their participating rights. Last year the Ordinary shares received, apart from the 1 dollars regular dividend, an extra 2 dollars, but that still left a further 8 dollars per share to pay on the Ordinary before the Preference holders rank for participation. At 82 dollars the Ordinary shares yield 4/ per cent. on the basis of the 1936 rate of dividend, a generous return in relation to the promising earnings outlook.

* * * *

Venturers' Corner

The high level of activity in the roadmaking and general construction trades should mean better times for companies such as Neuchatel and Val de Travers Asphalte. A few months ago demand had improved sufficiently to bring many of the leading mad-building firms into a gentlemen's agreement to avoid the price-cutting tactics which inflicted losses all round in the depression years. As a consequence, the bigger volume of work now being undertaken is on a distinctly more remunerative basis. Moreover, to judge from the Govern- ment's plans, there is enough road construction in view to keep the industry busy for several years to come.

As a recovery speculation quoted well below its par value the £1 Ordinary of the Val de Travers Asphalte Company, around 10s. 3d., seems to me to offer chances of a rise in value. Before the depression this company paid a regular dividend of 10 per cent., but in 1932 earnings declined sharply and nothing has been paid since that year. The position, however, is far from hopeless. A new board of directors has taken control whose policy is to bring plant up to date and reduce costs of production, and the balance-sheet shows an ample supply cf liquid assets.

Drawing its supplies of asphalte from Switzerland, the company should benefit from the devaluation of the Swiss franc and should also be enjoying better trade in Sicily, where it has important interests, now that the Italian cloud has blown over. The earnings recovery will necessarily be slow while the internal reorganisation is being carried through, but those who buy the shares in a spirit of patience should see a gradual