WISE INVESTMENT

As I suspected, the City's second thoughts on revised version—have proved much less terrifying' than the first. It is now apparent that although the new levy will cut into distributable profits, especially of companies whose recent revival has been most spectacular, the particular application of the general formuLT will be elastic enough to smooth out not of the anomalies which appeared inevitable a week ago. Accordingly, after a slump which has cost investors as well as speculators large sums, bargain-hunters have plucked up courage and distress selling has found a cushion of investment support awaiting it. Prices of sound industrials, such as British Oxygen, Courtaulds and General Electric, as well as of the more promising mining shares, which were under heavy fire last week, have rallied sharply.

While there must be some adjustment of equity values to the changed conditions imposed by the new tax, I repeat my advice to investors to keep their heads and their stock in view of the undoubted prosperity of industry at home and the probability that international trade recovery will continue to broaden out. Day-to-Jay fluctuations in Throgmorton Street will probably reflect for some time the gradual liquidation of the speculative positions at present being nursed by banks and brokers, so that the rise may be slow. But the tender shoots of recovering confidence are already there, and if only they are spared from chilling winds, will soon become sturdy growths:

GOOD PREFERENCE YIELDS While equity values have been thrown into the melting pot, prices of fixed-interest securities have remained significantly firm. As trade recovery broadens out it must be expected that interest rates will harden, but I think the movement will be so gradual that investors in sound fixed-interest securities will not come to any great harm. Here is a group of half a dozen preference shares on all of which the yield is generous enough in relation to the security offered :- No. of times dividend covered.

Alpha Cement 51% Cumulative £1 Preference .. .. .. .. 5 Amalgamated Metal 6% Cumulative

£ t Preference .. .. .. 6 Borax Consolidated 5% Cumulative £50 Preference .. 4i British Ropes 6% Cumulative los.

Preference .. .. .. .. _ 6 Ranks 6% Cumulative Li First - Preference .. .. .. .. 61 Second Covent Garden Property 5%

Cumulative £i Preference .. 21

Current price.

24,'3 27;6 knit* 12/10/ 276 21.'3 Yield £ s. d.

4 10 9

4 7 3

4 15 8 4 13 2

4 7 3 4 14 I

Earnings of all these companies are at present .increasing, thus enlarging the already ample. cover for the preference dividends. The average return on an 'investment spread evenly over the group would be roughly £4 I Is. per cent.

CANADIAN SHARE PROSPECTS

It is disappointing but not surprising that Canadian securi- ties, whose merits have been consistently emphas-sed in these notes, have fallen sharply in the market collapse. Always sensitive to the course of events in Wall Street, Canadian shares have enjoyed a considerable but rather speculative following from London in recent months, with the result that they have inevitably felt the repercussions of the widespread rush to lighten commitments. I do not think any solid holder need pay much attention to the setback, which should soon be compensated by a rally on the strength of the latest trade news. In the words of one of Canada's biggest banks, "the past few months have witnessed the broadest and strongest industrial advance of the present economic revival." Over three- quarters of the industries of the Dominion are operating at 75 per cent, or more of capacity, and the recognised barometers, railway traffics, steel production, employment, all show rises of roughly to per cent. over the corresponding figures of 1936.

Among the shares which have suffered in the decline Steel Company of Canada common, now giround 8o dollars, against a recent quotation of 93i dollars, should be well worth support, and so should Howard Smith Paper at 271 dollars, and Fraser

Company at 40 dollars. Earnings in all these cases are increas- ing and already justify a higher valuation than the current market price. Among the newsprint shares I still regard International Paper preferred, quoted in Wall Street at 1°7 dollars, against a recent level of 120, as the best value for money. offering a chance of worth-while capital appreciation without involving any serious risk.

* * * * PROSPEROUS OIL INDUSTRY

As one of the industries which have emerged strongly from acute depression since the Chancellor's basis period of 1933-34-35 the oil trade seems to be marked out as an important contributor under the National Defence Contribution scheme, and oil shares have accordingly been subjected to a precipitate scaling down in Throgmorton Street. Apart altogether from the probability of some adjustment being made in the basis period, however, I am convinced that the current low level of share quotations does much less than justice to the strength of the oil situation. In the interval between the beginning of the year and the Budget the oil companies had already raised prices of petrol and other oil products by an amount sufficient to bring an addition to their revenues of over £7,00o,00a per annum from their operations in this market alone. Since the Budget further increases in selling prices promise to raise profits by another £3,000,000.

Now if Mr. Chamberlain is aiming at a more £20 to £25 millions next year from N.D.C., I think it is a safe estimate that not more than one-fifth of this amount, say, £5 millions, will be levied on the oil industry. Either the benefits of all the recent increases in selling prices were fully discounted in oil- share quotations or the recent sharp falls have been dispro- portionate to the real effects of the tax. As most oil shares are now offering reasonable yields even on the 1936 level of dividends I incline to the latter view, which is strengthened by my firm conviction that we shall see a further id. rise in petrol prices before long. Shells at £5196, Anglo-Iranian at £5 -A-, and Trinidad Leaseholds at £7, are worth a place in the investor's portfolio.

* * * *

Venturers' Corner

It is so unusual in these times to find an engineering concern showing diminished earnings that some shareholders in Richardsons Westgarth, the Hartlepool marine engineers and boiler-makers, seem to have taken fright at the 1936 accounts. These are admittedly disappointing, operations having resulted in a net loss of £35,779 following a -loss of £27,058 in 1935. In consequence, preference holders, who have not had a dividend since April, 1930, are again to go empty-handed and the debit balance carried forward has been increased from £26,551 to £62,331. As the balance-sheet also reveals a bank loan of £223,463 against which liquid assets are quite trifling, it is apparent that a reorganisation scheme will have to be put through.

Superficially, the position is not inviting, but I cannot think the kr Preference shares, carrying seven years' arrears of dividend, are dear around ros . Behind the £350,000 of preference is an equal amount of ordinary capital, so that the brunt of the writing down should be borne by the ordinary shareholders. The earnings prospect, now that old contracts booked at unprofitable prices have been worked off, is vastly iniproved; the company has more orders on hand than at any time during the past seven years. With better prices obtainable for marine Work, profits should now be possible On a scale sufficient to enable the board to fund the bank loan on satisfactory terms and reorganise the capital so as to free available earnings for dividend payments. After the reorganisation the preference shareholders should be in possession of a security worth [Readers' enquiries, or requests for advice, regarding particular shares will be answered periodically as space permits. Corre- spondents who do not desire their names to appear should append initials or a pseudonym to their questions. Replies to corre- spondents appear this week on page 879.]