Tabell’s Market Letter – May 26, 1961

r- Walston &Co. Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CH.JCAGO OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER May 26, 1961 Despite a recovery late Friday, the Industrial average closed some 9 pOints lower on the week after reaching a newall-time intra-day high of 714.69 on Monday. The decline in the averages was accentuated by the dip in American Telephone, duPont and General Motors. Probably at this stage of the market, tho averages have even less mean- ing than usual. Market leadership is changing as the business pattern improves and, after some further churning back and forth over the next month, we expect the market to move higher with the more basic companies in the front line. Shortly before the first of the year this letter was fortunate enough to suggest the purchase of INTERNATIONAL MINERALS & ..apital -gains. At – thtt time the stock was selling for around 32. It has since moved up to a 1961 high of 50 1/4 and has been consolidating in the 45-50 range. Despite the advance in price, the stock still appears extremely attractive. At the time of the original recommendation, a number of factors were noted. It was suggested that rising costs, which had prevented any substantial increase in per- share earnings over the past ten years, were about to level off, and that further growth in sales could, in all probability, be brought down to net income. The growth in world 'demand for fertilizer was pointed out, and it was suggested that the company's consumer products division, which markets monosodium glutamate under the trade name of Ac'cen could well make a substantially increased contribution to both sales and net. The poten- tialities inherent in the company's new potash development at Esterhazy, Saskatchewan, were also noted. Recent developments make our original projection in regard to this mine appear quite conservative. Mr. Claude O. Stephens, President of the Company,re- cently estimated that that company's potash projectar ab \Wh, ould produce 5 million annual net income. This estimate he 0 ser ve one. Since Texas Gulf has only a 750/0 net profit interest in the pro' , an extension of Mr. Sit ph ep.s, WQuid indicate ,that it is ' million 'after taxes. Assuming a 45 tax rate to io owance, the mine would then be earning some 11.8 million bei dc6e etion, or slightly more than 10 per ton based Oil anticipated ti 1 tons. , IGL expects t h i r y mine in production by mid-1962 with an initial 450, OOO-t c i , rt ereafter to be increased to a million tons. Fur- ther increases are b1 However, assuming the mine's profitability is the same as the Texas G 0 tion, it could be producing 1.60 per share based on 450,000 tons product' and 3.50 per share based on a million tons before taxes and depletion. This would be in addition to the normal growth in earning power which should take place over the next three to four years from the company's present operations. Regarding the Esterhazy mine, the following factors should be noted (1) The ore body is believed to be somewhat richer than the Texas Gulf mine and profitability could, therefore, be even greater, (2) Canadian tax laws make it probable that earn- ings will be largely or completely sheltered from income tax in the initial years of operation, (3) IGL, currently a major producer of fertilizers, has already-established outlets for potash. (4) The Saskatchewan mine has a number of obyious advantages il regard to shipping to mid-western fertilizer markets. There appears, moreover, to be little doubt abo,ut, the company's ability to market their-product. Vvorld demand for potash is growing at a rate of 600,000 tons annually, and long-term projections indicate demand should outrun current foresee- able supply in every year to 1970, with the exception of the 1962-65 period. Even in this period over-capacity will be slight. Based on the above factors, it does not appear at all optimistic to suggest that IGL could double its current earning power(3. 15 per share is estimated for the year ending this June) by 1964-65. Indeed, it is quite possible that the increase in earning power may be substantially greater. Diyidend payout has historically been relatively liberal and there is every expectation that,as earnings increase, the current 1.60 annual dividend rate could also be moved upward. From a technical point of view, the stock continues to have a minimum upside ob'ective of 75 with a ossible readin of even hi her levels Purchase is aain su,,- to be construed as, an offer to sell or 0. sohCltatlOn to buy any securittes referred to herem The information contnmed herein is not gUoranteed as to accuracy or completeness lmd the furmshIng 'P to be construed as, a rerresenta- D I'tJtD 4,.('.A, n…C of opInion are subject to change Wlth6fttt 'iHIM &V fio have an mterest 18 the secUrtUeI letLfH a !l' AJObiWJNt w…. Directors, Stockho ders and and presented merely as general, 101referred to herem