April 15, 2002

ATP Oil & Gas Corporation (ATPG on NASDAQ), Houston TX, tel: (713) 622-3311. Price: April 13/02: $3.50, 52-week range: $12.96-1.47.  This is the first mention of the company in this newsletter.  ATP is actively engaged in the acquisition and development of oil and natural gas in the offshore Gulf of Mexico and Southern Gas Basin of the North Sea.  The company has ownership interests in 52 offshore blocks in the Gulf of Mexico and 5 offshore blocks in the North Sea.  It owns 27 platforms and 74 wells including 7 subsea wells.  In the GOM, the Ladybug project in the Garden Banks are came on stream in mid-September with 2 subsea wells.  The first production in the North Sea will come from Helvellyn in 2003.  Proven reserves have increased substantially to 235 Bcfe. Production in 2001 was 25.7 Bcfe and is expected to be 26.0 Bcfe this year.  Revenues in 2001 were $106 million.  Current production from Ladybug is at 3,600 b/d oil and 3.6Mmcf/d of natural gas, thus changing the mix to 65% gas from last year’s 85%.  The company is expected to generate cash flow of $40 million this year.  Much of this will have to be used to pay down its credit facility, which is presently maxxed out at $70 million.  This means that capital expenditures will be reduced this year and left over cash flow applied to development as opposed to exploration and acquisition.  If the company can play its cards right by paying down debt and improving working capital, the cash flow generation of $2/sh based on 20.3 million shares outstanding will take on stature.  Hence, a 3 times multiple could be awarded the stock particularly when North Sea production becomes visible thus implying a $6 share price.

Alimentation Couche-Tard Inc. (ATD.B on TSE), Laval, QC, tel: (450) 662-3272     Price: April 13/02: $34.00, 52-week range: $34.40-12.02.  Last mention of the company in this newsletter was at $29.65 on Feb 22/02 and first mention was on Sept 28/01 at $17.50.  Company had a fine 3Q, 16-week period ended Feb 3/02 with earnings of 25 cents/sh compared with last year’s 14 cents.  Earnings for this year are projected at $1.30/sh and for next year, $1.60.  The shares are currently trading at 21.2 times next years earnings, indicating that the stock would normally be considered full value.  However, the company is on an expansion through acquisition program and to date this is working out quite well.  It has picked up a small chain of 12 stores in Southeastern Indiana and in the Cincinnati area that will be absorbed into the existing hub of 227 stores in the Midwest.  Management is on record in saying that their goal is to operate 1,000 convenience stores in the US Midwest to go along with their 1,925 stores in Canada.  A case could therefore be made that the company’s stock could command a premium P/E relating to its ambitious growth plan, say a 25 multiple, thus pointing the way to a $40 price level over the next year.

Baytex Energy Ltd. (BTE on TSE) Calgary, AB, tel: (403), Price: April 13/02: $6.55, 52-week range:$13.55-3.00.  Last mention of the company in this newsletter was at $3.95 on Nov 23/01, first mention was at $12 on May 12/01.  The least that can be said about Baytex stock is that it has bounced back somewhat from depressed levels.  The company reports asset sales of $100 million.  This combined with a cut in producing heavy oil at low prices accounts somewhat for the drop in production during 4Q 2001 to 42,990 boe/d from 48,187 boe/d in 3Q 2001.  The company is now projecting production in 2002 to average 38,300 boe/d composed of 2,800 bo/d light oil, 23,500 bo/d heavy oil and 72.0 Mmcf/d natural gas.  It has hedged approximately 60% of its oil production and 70% of its gas production and by doing so calculates that it will produce cash flow of $158 million, or $3.03/sh.  A significant recovery in heavy oil prices is presently taking place that will help the company meet projected cash flow and assist in paying down debt.  The company was provided with net asset evaluations of its reserves indicating a discounted value equivalent to $14.10/sh., but a significant portion of this is attributable to Proven Non Producing and Proven Undeveloped.  At first glance, Baytex stock appears to be cheap but there are enough imponderables, such as the price direction for heavy oil, the cost of replacing reserves and the ability to pay down debt which is still at 2.8 times cash flow, to conclude that the shares are fully priced.

Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (763) 551-5000. Price: April 13/02:$37.25, 52-week range: $38.69 –14.81.   Last mention of the company in this newsletter was at $34.05 on Jan 23/02 and first mention was at $7.29 on April 8/00.   For a few days CHBS stock tanked when it was announced that same store sales in February had increased only 2%.  One month makes not a year.  March same store sales increased 12%.  More importantly, the company announced record 4Q and yearly earnings.  For the 13-week period ended March2, 2002 net income rose 21% to $10.3 million, or 39 cents/sh compared to net of $8.5 million, or 33 cents/sh for the 14-week period ended March 3, 2001.  For the fiscal year ended March 2/02 net climbed 29% to $32.9 million, or $1.26/sh compared with $25.5 million, or $1.00/sh last year.  Net sales increased 32% to $276 million from $209 million, with same store sales increasing 6%.  During the year, the company retired the remaining $5.3 million of long-term debt and still ended up with an increase of $6 million in cash reserves to $40.9 million.  The company plans to build on its existing network of 364 stores in the Northern half of the USA by opening an additional 90 stores in fiscal 2003.  While currently trading at full value, the stock can continue to be held as a long-term growth investment.

Citigroup Inc. (C on NYSE), New York, NY, tel: (212) 559-1000. Price: April 13/02: $47.10Jan 23/02: $49.50, 52-week range: $53.75-34.51. Last mention of the company in this newsletter was at $49.50 on Jan 23/02.  Citigroup reported its 1Q earnings on April 15/02 at 74 cents/sh, short of expectations of 77 cents.  The earnings matched those of 4Q 2001 and were 3 cents better than the 71 cents reported in the year ago quarter.  The news was disappointing to investors and at the time of writing C stock is down $1.50 to $45.60. The shortfall appears to have been caused by a greater than expected losses in the Emerging Market area (read Argentina) and less than expected income from the Corporate & Investment banking area, in spite of the income derived from the partial spin-off of its Travelers Property Casualty unit.  Nevertheless, Citigroup, with its strong balance sheet, is well positioned to do meet expectations of earnings of $3.20 this year and $3.70 for next year.

Compass Bancshares Inc. (CBSS on NASDAQ), Birmingham, Ala., tel:(205) 297-3331, Price: April 13/02: $33.01, 52-week range: $33.09-21.70.  Last mention of the bank in this newsletter was at $29.59 on Feb 22/02.  Compass announced 1Q2002 earnings today and these did not disappoint shareholders.  Earnings of 59 cents/sh were up 18% year/year.  Return on assets expanded to 1.33% as did return on shareholders equity to 17.26%.  A 15 multiple to this year’s projected earnings of $2.35 implies a share price of $35.25.  If the bank can maintain its growth curve and achieve profits of $2.60 next year, a similar multiple points the way to a share price of $39 a year down the road.

EnCana Corporation (ECA on TSE and NYSE), Calgary, AB, tel: (403) 290-2020, price: April 13/02: C$45.70, 52-week range: $52.30-35.05.  New name for PanCanadian Energy Corporation.  Last mention of the company in this newsletter was on Feb 23/02 and first mention was at $36.50 on Aug 31/01.  PanCanadian (PCE on TSE, PCX on NYSE) and Alberta Energy Co. (AEC on TSE) merged on April 4,2002 to form the energy powerhouse EnCana.  For PCE it was simply a name change since the exchange was done on a share for share basis.  The merged company is a well financed large-cap with 498 million shares out on a fully diluted basis (C$22.7 billion market cap) and a better than average debt to capital ratio of 38%.  Forecast production for this year is at an average rate of 625,000 boe/d, consisting of a mix of 60% natural gas and 40% of oil & liquids. 90% of production is in North America, the balance in UK and Ecuador.  A plan for production growth of 15%/year is in place for the next 4 years.  As an example, just the Panuke gas field offshore Eastern Canada and the Buzzard oil field offshore UK together will add 140,000 boe/d in 2005.  Cash flow of $8.90/sh is estimated for next year, 2003, and ECA shares could trade at a 6 times multiple to this, or at a price level of C$53.

Fairmont Hotels & Resorts Inc. (FHR on TSE and NYSE), Toronto ON, Tel: 1-866-627-0642, price: April 15/02: $46.14, 52-week range:$46.85-20.49.  Last mention of the company in this newsletter was at $36.50 on Jan 23/02 and first mention at $35.35 on Aug 31/01.  The company reported today better than anticipated earnings for 1Q 2002. Revenues of US$134.5 million were down 5.8% from 1Q2001 and EBITDA were actually up: US$38.1 million vs US$37.8 million.  Income from continuing operations was $13.6 million, or 17 cents/sh compared with a loss of $4.5 million or 8 cents/sh in the first quarter of 2001.  As a result of this stronger than expected first quarter, the company is providing guidelines for EBITDA of $190 million to $200 million for year 2002 and for earnings of $1.00/sh compared with their previous forecast of 79 cents to 87 cents.  The stock closed at a new high on the news at $30 on the NYSE, $47.67 on the TSE.  Trading at 30 times optimistic earnings indicates that the stock is full value at the moment.  However, taking into consideration the quality of the company’s hotels and resorts, a case can be made for owning Fairmont as a long-term growth investment.

Gauntlet Energy Corporation (GAU on TSE), Calgary AB, tel: (403) 216-8660. Price: April 13/02: $8.00, 52-week range: $9.19-2.85.  Last mentioned in this newsletter at $3.85 on Jan 23/02 and first mentioned at $5.45 on June 22/01.  4Q natural gas production increased to a rate of 20.3 Mmcf/d from 3Q’s average rate of 19.0, 18.1 in2Q and 13.6 in 1Q.  This produced cash flow of $3.3 million, or 16 cents/sh based on 20.4 million fully diluted shares.  For the year, cash flow at higher commodity prices came to $17.2 million, or 84 cent/sh.  It is difficult to see much higher than $20 million generated in cash flow by Gauntlet in 2002.  This would represent 98 cents/sh.  A 5 times multiple indicates a share price of $5, considerably less than the current trading price.

Jos. A. Bank Clothiers, Inc. (JOSB on NASDAQ), Hampstead, MD, Tel: (410) 239-5715.  Price: April13/02: $17.10, 52-week range: $17.55-4.08.  Last mention of the company in this newsletter was at $8.25 on Feb 22/02.  First mention was at $8.30 on Nov 23/01.  The company came through with its prediction for higher earnings for the year ended Feb 2/02, $6.5 million, or $1.05/sh compared with last year’s $5.0 million, or 80 cents/sh.  This was the result of an improvement in operating margins, since sales increased only 4% from $203 million to $211 million.  As is the case with many retail merchandisers, the bulk of activity took place in the November-January period which produced flat sales of $67.3 million vs $67.2 million, and net income of $4.4 million, or 70 cents/sh, compared with$2.9 million, or 48 cents/sh.  The company plans to add 20 stores this year to its current network of 137 stores.  While there was no increase in sales in the last fiscal year, the company notes that in the first 2 months of the current fiscal year, February and March, sales have increased 17% to $35.6 million from $30.4 million. Even same store sales rose 7.2%.  The share price has doubled since the last publication of this newsletter, 7 weeks.  Sounds too good to be true.

La Senza Corporation (LSZ on TSE), Montreal QC, tel: (514) 684-3651, Price: April 13/02: $13.00, 52-week range: $13.50-5.75.  This is the first mention of the company in this newsletter.  La Senza is a specialty retailer offering fashionable apparel for women but is gradually concentrating into two distinct markets: woman’s lingerie and girl’s ‘tween-age’ apparel.  The company operates 464 stores in Canada and 117 outside Canada where it is involved in co-operative and licence agreements in the UK and in the Middle East and Malaysia.  The parent La Senza Corp will supply product to the UK joint-venture partner, La Senza Ltd., to permit expansion into European markets.  It is currently negotiating to launch La Senza shops in China and India.  In Canada it will open new stores in outlet malls, airports and other venues where it has no presence. It plans to test the waters in the USA in the spring of 2003.  Principal banners are Suzie Shier, L.A. Express, anne.x stores, lingerie and sleepwear stores La Senza  and Silk & Satin, and La Senza Girl.  The company is converting many of its stores into two main banners: La Senza and La Senza Girl.  Already 60 of its Canadian stores are operating under the La Senza Girl banner that caters to the 8-14 ‘tween’ age market.  The new direction is bearing fruit.  Sales for fiscal 2002, the 52-week period ended Feb 2, 2002, increased 6.8% to $389 million.  Comparable store sales increased 4.6%.  More importantly, as a result of rationalization, margins have improved and net income increased to $22.4 million, or $1.71/sh, compared with $15.6 million, or $1.20 a year ago.  The quarterly dividend has been doubled to 4 cents from 2 cents.  Finances appear to be solid with cash and equivalents at $62 million and its remaining share holding in Wet Seal having a market value of $84 million.  There are 13 million shares outstanding.  At the current price, the shares trade at 7.6 times earnings to yield 1.2% on the 16 cents dividend.  While waiting to see if the company can continue to do well in its conversion and expansion program, the stock could very well trade at a modest 10 times realized earnings, or $17.

Nycan Energy Corp. (NYE on TSE), Calgary AB, Tel: (403) 264-7377, Price: April 15/02: $1.39, 52-week range: $2.25-0.96.  Last mention of the company in this newsletter was at $1.25 on Jan 23/02.  Nycan completed the year 2001 with revenues of $15.4 million compared with $13.7 million last year, cash flow of $8.7 million, or 52 cents/sh., compared with $7.5 million and earnings of $3.8 million, or 22 cents/sh, compared with $3.7 million a year ago.  Most of the improvement came about in the first 6 months of the year when commodity prices were higher.  Capital expenditures increased 43% to $12 million.  The company participated in 32 wells during the first 6 months but in only 11 wells in the last half of the year.  In fact, Nycan, because of low natural gas prices, left behind under casing production of 1.5 Mmcf/d which is scheduled for production this year.  The company exited the year producing at an average rate of 1,417 boe/d compared with last year’s exit rate of 1,210.  Balance sheet was healthy with net debt paid down to $5.7 million against an existing line of credit of $16 million.  The capital budget for 2002 is currently planned at the modest $5.6 million level to be financed out of cash flow.  The shares of this junior now appear to be adequately priced in the present context of the market place.

Real Resources  (RER on TSE) Calgary, AB, tel: (403) 262-9077.  Price: April 13/02: $3.62, 52-week range: $4.80-2.75.  Last mention of the company in this newsletter was at $3.06 on Nov 30/01 and first mention was at $4.11 on May 12/01.  Production increased sequentially in each of the quarterly periods in 2001.  Production averaged 4,700 boe/d during the last quarter with natural gas now accounting for 40% compared with 26^ at year-end 2000.  Capital expenditures for the year came to $37 million compared with cash flow generation of $28 million.  Some minor assets were sold for $5million and this combined with the proceeds from a private placement share financing of $4million has paired down net debt to what appears to be about $33million.  Cash flow projections for 2002, based on lower commodity prices, now appear to be closer to $25 million, or $1.25/sh, in spite of increased production to levels approaching 5,500 boe/d.  The company is encountering success in an oil development-drilling program at Neutral Hills in East Central Alberta that could add 1,400 bbl/d of oil production by year-end.  A premium multiple of 4.5 could be awarded to the stock of well-managed Real Resources, implying a share price of $5.62.

Reitmans (Canada) Limited  (RET.A on TSE), Montreal, QC, Tel: (514) 384-1140, Price: April 13/02: $33.71, 52-week range: $35.00-17.50.  Last mention of the company in this newsletter was at $25.75 on Jan 23/02.  Two important events have taken place since the previous mention of the company in this letter 7 weeks ago.  First of all, Reitmans announced better than anticipated 4Q and full year results than were expected.  Secondly, the company announced a strategic acquisition.  Sales for the 52 weeks ended Feb 2, 2002 increased 9% to $566 million over the $518 million for the 53-week period ended Feb 3, 2001.  Comparable store sales increased 5%.  Net income increased 33% to $26.9 million, or $3.20 per share, from $20.2 million, or $2.35/sh.  Sales for 4Q, 13 weeks ended Feb 2/02 increased 6% to $163 million over the 14-week period a year ago, while comparable sore sales increased a nifty 13%.  4Q earnings increased 41% to $7.2 million, or 85 cents/sh, compared with $5.1 million, or 60 cents a year ago.  The company continued its fine-tuning by opening, over the year, 53 new stores (22 Reitmans, 9 Smart Set/Dalmys, 17 Penningtons and 5 RW&Co stores) and closing 31 stores (27 Reitmans and 4 Smart Set/Dalmys).  At Feb 2, the company operated 623 stores in Canada consisting of 328 Reitmans, 148 Smart Set/Dalmys, 119 Penningtons and 28 RW&Co outlets, compared with 601 stores a year ago.  On April 10, Reitmans announced it was acquiring Shirmax Fashions Ltd. in a $7/sh cash deal for a total of $85.4 million.  Shirmax operates 174 stores consisting of the following banners: 69 Addition-Elle Fashion stores in malls, 39 Addition-Elle Fashion Outlet stores in power centers and 66 Thyme Maternity stores in malls.  Some of these stores were previously known under the banner Shirley-K.  For the year ended Jan 26/02, Shirmax had sales of $195 million up 18% over the year and comparable store sales were up 5.5%.  Income of $6.5 million, or 56 cents/sh, had increased 18% over the year.  So, Reitmans is paying 13 times earnings for a growing company.  What this does for Reitmans is that it brings in a new market, maternity wear, and it upgrades the Plus-Size, since Addition-Elle offers higher quality than Penningtons. Also, it strengthens Reitmans presence in power center outlets and introduces the company to some outside Canada thrust.  Shirmax has begun expanding its Thyme Maternity International Inc.unit into China and Scandinavia.  Meanwhile, this acquisition will assist Reitmans in filling up their 330,000 sq.ft. distribution center slated for completion in June 2003 & designed to service 1,000 store locations. On a pro-forma basis, the combined companies have 800 stores, revenues of $762 million and earnings per share of $3.54. A Canadian chartered bank has stepped up with a loan agreement for the purchase.  Following the completion of the acquisition, Reitmans would still have sound financials with a debt/equity ratio of 0.44.  Its cash and significant investment portfolio would continue to be applied to asset expansion.  A strong case can be made for an expansion of the P/E multiple to Reitmans stock.  A 15 multiple implies a $53 stock price and a 20 multiple a $70 share price.

Spire Energy Ltd. (SEY on TSE), Calgary AB, tel: (403) 269-9016, Price: April 13/02: $2.14, 52-week range: $3.27-1.40.  This is the first mention of the company in this newsletter.  Spire is a company that explores for, develops and produces natural gas in two distinct areas of Alberta: North Central Alberta and East Central Alberta.  It processes 97% of its production through 4 company-owned facilities.  Natural gas production doubled in 2001 to average 16.3 Mmcf/d compared with 7.9 Mmcf/d in 2000.  On $32 million of revenues, this produced cash flow of $17.9 million, or 99 cents/sh, compared with last year’s cash flow of $7.9 million, or 46 cents/sh.  This cash flow financed a capital program of $15.2 million in 2001 and helped reduce year-end net debt by $2.4 million to a manageable $5.4 million.  Cash flow in 2002 is estimated at $14.8 million, or 80 cents/sh, based on production averaging 18.5 Mmcf/d at lower prices and will be sufficient to cover capital expenditures of $11.5 million.  The company plans to expand its land position by 25% to 80,000 net acres.  Natural gas reserves on Dec 31, 2001 were calculated at 26.3 billion cubic feet up from 20.5 billion at year-end 2000 and represented a net after debt asset value of $3.27/sh.  97% of Spire’s gas reserves were classified as proven, with 75% of the proven reserves categorized as proven developed producing.  Taking this into consideration and applying a multiple of 4 times projected cash flow/sh of 80 cents/sh, based on 18.6 million shares outstanding on a fully diluted basis, Spire stock could very well trade at the $3.20 price level.

Back to main page