December 28, 2000
ARC Energy Trust (AET.UN on TSE) Calgary, AB tel: (403) 292-0680. Price: Dec 28/00: $11.20, 52-week range: $12.15-8.35. First mentioned at $9 on Feb 4/00. The trust has been paying out 17 cents/unit/month over the last few months, has declared 25 cents for January and expects to pay 20 cents/unit in each of February and March. The trust has agreed to acquire Startech Energy Inc. for $485 million through a combination of cash and units. Total units to be outstanding will increase from 72.6 million to 102.6 million. Startech brings with it production of 13,500 boed and quality life reserves of 57 millions boe. The trust currently accounts for 23,215 boed, so this is a significant & accreditive acquisition. At current price levels, the units trade to yield over 20%.
BridgePoint International Inc. (BDG on TSE), Montreal, QC Tel: (514) 878-1555, Price: Dec 28/00:$0.65, 52-week range:$3.65-0.40. First mentioned on March 1/00 at $4.81. The company has extended its agreement with Ericsson, the world's leader in telecommunications, that paves the way for the creation of a world-wide accelerated co-marketing program. This involves housing facilities that provide IP, data networking and AXE switching solutions. The company is also negotiating with Compaq to set up centers that will provide remote network operations and data archiving. BridgePoint currently operates centers in Montreal, Toronto, Calgary, Vancouver, New York and Los Angeles and expects to operate in 34 centers including Mexico City, London, Sao Paulo, Hong Kong and Miami. Company has currently 46 million shs out and cash of about $20 million, equivalent to 2 years burn rate. Present revenues are modest so that a share holding in BDG is a long-term proposition.
Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (612) 551-5198. Price: Dec 28/00: $28.00, 52-week range: $41.88 -9.00. First mentioned on April 8/00 at $16.40 adjusted for 3 for 2 split and when known under the name of Braun's Fashions. The company continues to achieve record results as a specialty retailer of women's clothing and accessories in 26 states in northern USA. Earnings of $2.12 per share are forecast for this year and $2.64 for next. This represents a return on equity of over 50%. There are only 10.5 million shs out. With this type of growth, a rebound in the share price to $40 would represent a p/e of 15 times next years' earnings.
Freehold Royalty Trust (FRU.UN on TSE) Calgary, AB tel: (403) 221-0802. Price: Dec 28/00: $8.60, 52-week range: $9.50-5.60. This is the first mention of Freehold. This is an open-end trust which receives and distributes royalty income from a diversified base of oil and gas across western Canada. It receives income from over 12,000 wells on more than 660,000 gross acres. The royalty trust was established in 1996 to purchase the producing royalty lands from the CN Pension Trust Fund which, itself, had acquired 25% of the original Hudson's Bay Royalty Lands. Growth in the underlying value of the trust is achieved in 2 ways - ongoing development activity on the land base, and, the acquisition of new oil & gas assets. Since this activity is generated by third partners, the Trust does not assume risk involved in exploration. The cash distributions are tax deferred since they are considered a return of capital. The current payout of 10 cents/unit/month combined with some extras should generate about $1.40/unit/year, thus producing a yield of 16% at the current price.
Gildan Activewear Inc. (GIL.A on TSE, GIL on NYSE) St.Laurent, QC tel: (514) 735-2023. Price: Dec 28/00: $59.50, 52-week range: $66.50-25.50. First mentioned at $28.25 on Dec 26/99. Gildan is a vertically integrated manufacturer and marketer of, primarily, cotton T-shirts for sale in the wholesale segment of the North American market. It is expanding into Europe. For the year ended Oct 1/99 sales increased by 37% to $459 million and net income doubled to $83 million, or $3.84/sh. Sales for the coming year are expected to be $600 million and eps to range from $4.85 to $5. The company has targeted sales of $1 billion by end of 2003. Annual production by then will be 30 million dozen compared with 14 million in the year just completed. Company has only 14.8 million shs out. Over the near term, the shares could trade at 15 times earnings, or $75.
Manulife Financial Corp. (MFC on TSE), Toronto, ON Tel: (416) 926-3000 Price: Dec 28/2000: $47.50, 52-week range:$47.50-15.25. First mentioned on March 1/00 at $17.15, the stock along with Sun Life and Canada Life has become a favored holding in institutional investment portfolios. The stock now trading at 20 times expected earnings of $2.40 for 2001 appears to be fully priced.
National Bank of Canada (NA on TSE), Montreal, QC Tel: (514) 394-5000. Price: Dec 28/00: $26.70, 52-week range: $27.45-16.25. First mentioned at $20.35 on March 1/00, National Bank, Canada's 6th largest bank has benefited from good results from its investment bank and stock brokerage operations. The stock trading at 9.5 times expected earnings of $2.80 for 2001 appears now to be fully priced.
Royal Group Technologies Ltd. (RYG on TSE), Woodbridge, ON Tel: (905) 264-0701 Price: Dec 28/00: $19.80, 52-week range: $36.50-16.10. First covered in this newsletter on Oct 15/95 at $18 and last mentioned on March 1/00 at $29. After producing growth in eps at a compounded rate of 20% over the last 4 years, the company produced flat earnings in the recently completed 4Q. This resulted in earnings for year 2000 at $1.95 vs an expected $2.03 and compared to $1.75 for 1999. Raw material cost, particularly PVC resin, impacted pre-tax earnings by $60 million. Royal shares further reacted to the downside when on Dec 18 the company predicted that a slower economy will result in sales increases for 2001 of 10% to 15% as opposed to the previously forecasted 15 to 20% growth rate. This implies revenues of $1.75 billion in 2001 vs $1.56 billion in 2000 and eps for next year of $1.75 to 1.90. Over the next 12 months, a stock price of $27-28 should be considered to be optimistic, this until growth once more kicks in for this well run company.
Saputo Inc. (SAP on TSE), St. Leonard, QC Tel: (514) 397-3024. Price: Dec 28/00:$36.25, 52-week range:$41.25-25.000. First mentioned at $35 on Feb 4/00.The company has just announced the acquisition, for $407 million, of Dairyworld Foods, a major western Canada dairy products producer. Dairyworld has annual sales of $1.4 billion and EBITDA of $61.4 million. This will bring Saputo's total to $3.4 billion in sales and EBITDA of $329 million. 2nd Q results for SAP were very much affected by a 27% drop in cheese prices in the US. As a result, the company will consolidate manufacturing by closing 2 of its 17 US facilities. Growth in earnings over the balance of this year may be tame so that the current stock price reflects full value over the short term.
Storm Energy Inc. (SME on TSE) Calgary, AB Tel: (403) 264-3959 Price: Dec 28/00:$5.85, 52-week range:$6.20-2.30. First mentioned at $2.30 on Dec. 26/99. Company is projecting production of a minimum 8,000 boed next year, up from its current exit of 7,500 and a cash flow of $55 million, or $2/sh. Capital expenditures are planned at $50 million. Co currently has 27.6 million shs out, 29.1 million fully diluted. With the type of growth taking place, SME shares should trade at a premium and if this implies 4 x cash flow, an $8 price level is indicated.
Tethys Energy Inc. (TET on TSE) Calgary, AB tel: (403) 294-3550. Price: Dec 28/00:$1.84, 52-week range: $2.00-1.09. This is a first time mention of TET. The company, which engages in oil & gas exploration & development in western Canada, expects to average 3,500 boed for 2000 with cash flow of $0.84/sh. Capital expenditures for next year are estimated at $30 million. Anticipated cash flow/sh of $1 on the 30.7 million shs would then cover the capex. The stock appears cheap at less than 1.9 times this cash flow thus pointing the way to a more reasonable $2.50 price level.
TransAlta Corp. (TA on TSE) Calgary, AB Tel: 1-800-387-3598. Price: Dec 28/00: $21.45, 52-week range: $22.55-13.20. First mentioned on Dec 26/99 at $12.75. The company has bounced back quite nicely and is now trading at close to 20 times anticipated earnings of $1.10 for 2001. This appears to be rich and fully priced.
Transcanada Pipelines Ltd. (TRP on TSE) Calgary, AB Tel: 1-800-361-6522. Price: Dec 28/00: $16.50, 52-week range: $17.25-9.80. First mentioned on Dec 26/99 at $12.75. Doug Baldwin, president and CEO was given the mandate to streamline, reduce debt and unlock value to shareholders. He has done an exceptional job and the stock has reacted favorably, so much so, that it trades at near full value for at least the near term.
Vermilion Resources Ltd. (VRM on TSE) Calgary, AB Tel: (403) 269-4884 Price: Dec 28/00: $8.00, 52-week range: $8.85-4.00. First mentioned on Dec 26/99 at $4.65. The company produces oil and gas in Alberta and also from two fields in France. Production has been increasing at a 20% rate over the last 3 years. Capital expenditures for next year are targeted at $160 million, much of it funded by cash flow. Cash flow for 2000 is expected to come in at $130 million, or $2.40/sh. The company plans to produce at a rate of 20,500 boed next year, up from its exit rate of 18,000 this year and 13,000 last year. With this type of growth, the share trading price could be awarded a 4.5 times multiple, indicating a level of $11.
Wheaton River Minerals Ltd. (WRM on TSE) Toronto, ON tel: (416) 860-0919 Price:Dec 28/00:$0.38, 52-week range: $0.72-0.34. This is the first mention of the company. WRM is winding down production at its Golden Bear gold mine in northwestern BC. This mine produced 94,500 ounces in 2000 and there remains about 34,000 ounces to extract over the next year or two. Kinross Gold Corporation has so far spent $3 million on the company's George Lake project in the Nunavut territory and can earn a 70% interest by spending an additional $17 million by Nov 2004. The property has been yielding high grade gold intersections. Wheaton has temporarily put to rest its Bellavista gold mine development program in Costa Rica because of delays in permitting and low gold prices. The underground development at the Red Mountain gold project in NW BC is also being put on hold due to low gold prices. The company, however, has $20 million in cash, equivalent to the price quoted on its stock. Management expects to make a move so that these funds can be turned into increasing shareholder value.