November 23, 2001

Allied Oil & Gas Corp. (AOG on TSE), Calgary, AB, Tel: (403) 265-9782. Price: Nov 23/01: $2.65, 52-week range: $3.40-0.73.   Last mention of the company in this newsletter was on Aug 31/01 when trading at $2.85.  Company had put itself up for sale.  The City of Medicine Hat, Alberta is buying Allied in a cash deal at $2.65/sh.  Pity, the company is worth more than that.  End of coverage in this newsletter.

Alimentation Couche-Tard Inc. (ATD.B on TSE), Laval, QC, tel: (450) 662-3272     Price: Nov.23/01:$24.85, 52-week range: $25.90-11.25.  Last mention of the company in this newsletter on Sep 28/01 at $17.50.  The company reported excellent results for its 2nd Q ended Oct 14.01.  Earnings rose 84% to $16 million, 41 cents vs 23 cents.  Sales rose 56% to $633 million.  The results contain the US mid-western retail operations of  Bigfoot which blended in seamless fashion.  In Canada, same store sales rose 9.2%.  The strong cash flow of $29 million enabled the company to repay $14 million of long term debt bringing this to $242 million in relation to shareholder’s equity of $259 million.  Nevertheless, capital expenditures over the last 6 months of $28 million provided the necessary funds to finance the addition of 76 stores, the renovation of 55, bringing the total to 475.  Further acquisitions, albeit smaller, are planned for in the US midwest.  The growth curve appears to be well defined now and earnings appear headed to an annual rate of $1.50/sh over the next 18 months.  That being the case, the stock could be afforded a 20 times multiple to these indicated earnings.

Ballard Power Systems Inc. (BLD on TSE, BLDP on NASDAQ), Burnaby, BC, Tel: (604) 412-3195. Price: Nov.23/01:$46.31, 52-week range: C$132.50-22.00.  Last mention of the company in this newsletter was on Aug 31/01 at C$27.62.  The price of the shares has run ahead of itself and the stock appears to be fully priced at current levels.  Will review at a later date.

Baytex Energy Ltd. (BTE on TSE) Calgary, AB, tel: (403), Price: Nov 23/01:$3.95, 52-week range:$14.84-3.30.  Last mention of the company in this newsletter was on May 12/01 at $12.  Baytex stock has been a dismal performer.  Investors have been spooked by the heavy debt load, the result of several acquisitions. Debt at $497 million is, indeed, high but most of it is fixed at long term maturity.  At current energy prices, annual cash flow is running at $180 million and capital expenditures at $130 million.  The high level of capex has to be maintained in order to address the natural 25% decline in heavy oil pools. If managed properly, the combination of cash flow and dispositions of non-core capital assets of $80 million could still enable the company to continue on its growth curve.  Production during the 3rd Q exhibited good growth over that of the 2nd Q.  Light oil 6,077 Bbl/d vs 4,782, Heavy oil 29,078 Bbl/d vs 26,545 and natural gas 78.2 Mmcf/d vs 71.3.  Baytex was hit hard with poor prices for heavy oil as a result of refinery problems at a Chicago refinery.  The low prices for heavy oil will continue during the 4th Q and the price differential between that and light crude may diminish only next year.  Depletion and amortization charges will render low net income, cash flow generation of $150 million to $180 million, or $2.80/sh to $3.30, over the next 2 years should help support a share price of $8-10.  With a strong land position in 3 core areas: NW Alberta, west-central Alberta and western Saskatchewan and with a stock currently valued at $200 million, Baytex could be considered as a possible take-over candidate.

Beazer Homes USA, Inc. (BZH on NYSE), Atlanta, GA. Tel: (404) 250-3420. Price: Nov 23/01:$59.90, 52-week range: $79.35-31.  This is the first mention of the company in this newsletter.  The company is one of USA’s 10 largest single-family homebuilders, with operations in Arizona, California, Colorado, Florida, Georgia, Maryland, Nevada, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas and Virginia.  Beazer also provides mortgage origination, title and insurance services to its homebuyers.  Earnings for the 4th Q ended Sept 30/01 were up 32% to $2.56/sh and for the full year were up 62% to $8.18.  These were all-time highs for the company that caters to the first-time buyer.  Low mortgage rates have been a stimulus. The year saw 10,039 new orders for home, a 22% increase and at year-end the backlog was 3,977 homes, up 36% over the year ago figure.  The company is in a strong financial position with a debt (average maturity 8 years) to capitalization of 53% and with $42 million cash position, $4.60/fds.  Interest coverage was 4.6 times at fiscal year end.  The company is targeting earnings of $9/sh for fiscal 2002, 2 years earlier than found in their previous 5 year target.  A 9 times multiple to these earnings would indicate a stock price of $80.

Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (763) 551-5000. Price: Nov.23/01: $38.23, 52-week range: $47.50 –15.25.   First covered in this newsletter on April 8/00 at $10.93 and last covered on Sept.28/01 at $28.  The company continues to show above industry growth.  October same-store sales showed a 4% increase.  This came on top of what was a very strong October last year, when same store sales had increased then by 19%.  For the 8 months ended November 3, same store sales increased 8%.  During that period total sales were $146 million, a 36% increase.  The company now operates 350 stores as opposed to 272 a year ago.  C&B is maintaining lean inventories bringing in fresh designs and the strong sales are being made at regular price.  The company has announced a 3 for 2 stock split by means of a 50% dividend payable December 12/01.  This is the 4th 3 for 2 split in the last 2 years.  The shares should be held unto as a continuing growth vehicle.

Daisytek International Corporation  (DZTK on NASDAQ), Allen, TX, Tel: (972) 881-4700.  Price: Nov 23/01: $13.45, 52-week range: $17.65-5.25.  This is the first mention of the company in this newsletter.  Daisytek is a leading distributor of computer and office supplies and professional tape products and also provides marketing and demand generation services.  It distributes 17,000 nationally known name brand products and 2,800 professional tape products to 35,000 customer locations in the US, Canada, Australia, Mexico and South America.  Net revenues for the 2Q ended Sept 30/01 increased 15% to $279 million.  Net income was $2.1 million, or 12 cents/sh, compared with $3.1 million, or 19 cents/sh a year ago.  At September 30/01, working capital stood at $179 million, or $10.50?sh, and net debt of $95 million compared with shareholders equity of $171 million, or $10/sh.  The company was hard hit as a result of the aftermath of the tragic events of September 11, but operations are now back to normal.  For the fiscal year ending March 31, 2002, management expects revenues will have grown by 15% to $1.2 billion and that earnings should be in the range of $1.06 to $1.12/sh based on 17.3 million shares outstanding.  For the following year, it expects revenue growth of 10% to 15% to $1.3 billion to $1.4 billion and earnings per share of $1.30 to $1.40.  This could imply a share price target of $18.

Equatorial Energy Inc. (OZ on TSE), Calgary AB, tel: (403) 264-9562. Price: Nov.23/01:$2.03, 52-week range: $4.20-1.60.  Last mention of the company in this newsletter was Aug 30/01 at $2.75.  Production during the 3rdQ ended Sept 30/01 was oil & NGL 8,404 bbl/d compared with 8,708 in 2nd Q, natural gas 20,628 Mmcfd/d compared with 20,500 Mmcf/d in the 2nd Q, or combined 11,842 bbloe/d vs 12,118.  Cash flow for the September quarter came to $10.9 million compared with $15.6 million in the 2nd Q, the drop resulting from lower commodity prices.  Coincidental with the exercise of classifying probable reserves in Indonesia into proven reserves and going to the full-cost method of accounting as opposed to capitalizing costs, the company wrote down its petroleum and natural gas interests by $30 million.  This led to reporting a loss for the 6- month period ended Sept 30/01 of  $7.1 million or 25 cents/share vs a profit of $11.4 million or 57 cents/sh a year ago.  The company expects growth in production to 14,000 bbloe/d in 2002 and using benchmarks of C$3.90/Mcf for natural gas and US$21 for WTI oil, cash flow is estimated at $46 million or $1.45/sh.  Capital expenditures in 2002 are projected at $56 million ($22 million in Canada & $34 million in Indonesia.  In Canada, Equatorial has identified 200 drilling locations in low-risk shallow gas horizons.  In Indonesia, 3D seismic data is showing the possibility of 50 million to 80 million barrels of oil on one exploration prospect within existing concession boundaries.  The shares at current trading levels appear to be somewhat undervalued.


Inex Pharmaceuticals Corporation (IEX on TSE) Vancouver, BC, tel: (604) 419-3200. Price: Nov 23/001: $6.98, 52-week range: $7.48-3.26.  Last mention of the company was on Sept 28/01 at $4.88.  Inex has recently made a few major announcements.  Firstly, it announced that its anticancer product Onco TCS has been expanded to include 2 pilot phase II clinical trials evaluating Onco TCS in combination with the approved cancer drug etoposide as a treatment for patients with non-Hodgkin’s lymphoma (NHL).  Onco TCS is being developed within an agreement with Elan Corporation.  This is the 2nd set of pilot studies initiated in 2001.  The first set began in September with the approved cancer drug Rituxan.  This means that Onco TCS is currently being evaluated now in 8 human clinical trials.  The second announcement was that Inex has signed a licensing agreement with GlaxoSmithKline to develop targeted cancer drugs that encapsulate GSK’s proprietary camptothecin anticancer agents inside Inex’s proprietary drug delivery system.  The first drug to be developed under this agreement will be with GSK’s Hycamtin, approved for the treatment of recurrent ovarian cancer in 70 countries and for the treatment of recurrent small-cell lung cancer in 30 countries.  Hycamtin’s worldwide sales were $139 million in 2000.  This first product commercialized under the partnership includes an upfront payment of up to US$36 million plus royalties on sales.  Additional products would bring Inex additional milestone payments, financing and royalties.  GSK will be responsible for all development costs.  This deal with GSK validates Inex’s Transmembrane Carrier System (TCS) technology as a potential drug delivery system.  The third announcement was that Inex is floating to market an equity issue of 5.72 million shares at a price of $7 a share, thus raising $40 million.  There will now be 32.4 million shares outstanding.  Inex stock could be held as a long-term growth situation.

Jos. A. Bank Clothiers, Inc. (JOSB on NASDAQ), Hampstead, MD, Tel: (410) 239-5715.  Price: Nov 23/01: $8.30, 52-week range: $8.55-3.75.  This is the first mention of the company in this newsletter.  The company, established in 1905, is one of USA’s leading retailers of men’s classically styled tailored and casual clothing, footwear and accessories.  It sells its full product line through 134 stores, a nationwide catalogue and through its e-commerce website.  Sales for the 3rd Q ended November 3 increased by 14% to $50.2 million while net income increased 3-fold to $1.3 million, or 21 cents/sh from $0.4 million, or 7 cents/sh.  Same-store sales increased 4.3%.  For the 9-month period, sales increased.6.2% to $144 million and net income was virtually unchanged at $2.1 million, or 34 cents/sh.  The company is getting good mileage out of its Internet site.  The company has completed its expansion program for 2001 by opening its 21st store.  Plans are to open a further 50 stores over the next 2 years bringing the total to about 185.  The company is of a size that could show considerable growth.  With a sales volume expected to come in at $215 million for 2001, revenues per store would average $1.6 million.  The capital structure is also leveraged for growth.  With only 6.1 million shares outstanding, sales per share come to $35/sh.  At Sept 30/01, total debt of $33 million compared with shareholders equity of $48 million.  Inventory of $76 million appears high, perhaps in order to support demand from the e-commerce sit.  Management expects to exceed last year’s record earnings of $0.80/sh.  That being the case, the stock trading at 10 times earnings could end up doing quite well over the long pull.

Kohl’s Corp. (KSS on NYSE), Menomonee Falls WI, tel: (262) 703-1893, Price: Nov 23/01: $67.73, 52-week range: $72.24-41.95.  Last mention of the company in this newsletter was on Sept 28/01 at $47.82.  For the period ended Nov 3/01, Kohl’s reported a 31% increase in 3rd Q earnings to $100 million, or $0.29/sh.  Sales increased 22% to $1,760 million.  Same store sales during this period increased 7.1%.  For the 9-month period, net income rose 35% to $262 million, or $0.77/sh.  Sales increased 21% to $4,764 million, while during the same period comparable store sales increased 5.9%.  During the 3rd Q, Kohl’s opened 28 new stores bringing the total to 382.  In fiscal 2002, the company plans to open 70 new stores, 37 in the first quarter.  Earnings for the full year are now expected to come in at $1.38sh and are forecast at $1.65 for next year.  The company can see considerable more growth over the next few years with aggressive expansion planned for entry into the southwestern states and California.  However, the stock price now appears to be ahead of itself, trading at 49 times this years earnings and at 40.5 times next year’s.


Meota Resources Corp. (MRZ on TSE), Calgary AB, tel: (403) 781-2440, Price: Nov 23/01: $3.10, 52-week range: $5.50-2.15.  Last mention of the company in this newsletter was on Sept 28/01 at $2.55.  Recent results were generally disappointing.  During the 3rd Q ended Sept 30/01, Meota produced natural gas at a rate of 35.4 mmcf/d down slightly from 36.2 mmcf/d in the 2nd Q, and oil & NGL at a rate of 3,142 Bbls/d compared with 3,299 in Q2.  Because of lower commodity prices, cash flow came in at $11.1 million, or 20 cents/sh, in this 3rd Q, down from $15.1 million, or 27 cents/sh in Q2.  Looking into next year, Meota is planning capital spending of $10 million during the winter first quarter and expects to attain an exit rate of 10,500 boe/d compared with the 9,052 rate in this last 3Q.  Maintaining this rate for the balance of the year would require an additional $25 million expenditure.  Counterbalancing this total of $35 million would be cash flow of $44 million, with some left over to pay down current debt of $58 million.  The company will be participating (17.5% interest) soon in a deep drill test at Smoky River in Alberta which has significant potential to be a large gas reservoir.  To assist in the financing, Meota has raised $5 million by issuing 1.25 million flow-through shares at $4/sh. bringing the number of shares outstanding to 57.6 million, fully diluted.  The shares at current levels now appear to be fully valued trading at 4.1 times next year’s cash flow estimate of 76 cents/sh.


Nortel Networks Corporation (NT on TSE and NYSE), Brampton ON, Tel: (905) 863- 0000. Price: Nov 23/01: $12.99, 52-week range: C$69.85-7.50.  Last mention of the company in this newsletter was Sept 28/01 at $8.39, first mention was on June 22/01 at $13.50.  The company has most likely completed going through the worst parts.  Nortel has slashed 49,500 jobs, about 52% of its work force.  Encouraging was a recent supply and services agreement for US$1.1 billion over a 4-year period awarded to NT by Sprint’s LTD division to transform its entire telephone network to a more cost-effective packet voice network.  Nortel stock has reached the initial price level target of C$12 mentioned on September 28 but, because of the momentum built up and a more positive outlook to the stock market, can now be held for a new target of C$18 over the next 6-month period.

North Coast Energy, Inc. (NCEB on NASDAQ), Twinsburg, OH, Tel: (330) 487-6521.  Price: Nov 23/01: $3.45, 52-week range: $5.25-3.07.  This is the first mention of the company in this newsletter.  The company, established in 1981, is an independent oil and gas exploration and production company operating in the Appalachian and Illinois basins.  It owns 3,818 wells, operating 3,730 of these.  North Coast also operates 1,420 miles of natural gas gathering systems with access to the commercial and industrial markets of the northeastern US.  It has estimated net proven reserves of 143 billion cubic feet of natural gas and 1.2 million Bbls of oil.  These have a present value discounted at 10% of $183 million, equivalent to $12/sh, based on the 15.2 million shs outstanding. Land position is 375,457 gross (287,576 net) acres, of which 198,741 gross (147,377 net) acres are undeveloped.  Production during the 3rd Q ended Sept 30/01 averaged 26.9 Mmcfe/d selling at US$3.27/Mcfe and after production expenses, DD&A and general and admin. Expenses, grossed US$2.37/Mcfe.  This produced revenues of US$10.3 million, cash flow of US$4.9 million, or 32 cents/sh, and net income of US$1.8 million, or 12 cents/sh.  For the 6-month period, revenues were $21.6 million, cash flow $11 million, or 72 cents/sh, and net of $3.3 million, or 22 cents/sh.  At Sept 30, North Coast had a working capital of $20 million and long-term debt of $67 million compared with shareholders equity of $57.4 million, or $3.78/sh.  Long-term debt is 3.3 times annualized cash flow at current commodity prices.  The company is on target to complete 67 wells this year, including 8 deep wells in Ohio and West Virginia.  The shares currently trading at 2.6 times annualized 3Q cash flow appear to be attractive.

Palm Inc. (PALM on NASDAQ), Santa Clara, CA, Tel: (408) 878-9000, Price Nov 23/01:$3.46, 52-week range: $57.56-1.35.  This is the first mention of the company in this newsletter.  Palm is a pioneer in the field of mobile and wireless Internet solutions and a leading provider of handheld computers.  The company is in the process of separating itself into 2 divisions: the Palm OS platform business, which is the operating systems (software) that, among other things, caters to licensees and strategic partners such as Handspring, Kyocera, IBM, part of 170,000 developers and solution providers; and the Solutions Group (hardware) comprising handheld computers.  Revenues for the 2001 fiscal year ended May 30, 2001 were $1.5 billion.  Net loss from continuing operations was $27 million, or a loss of 5 cents/sh.  After extraordinary items, loss of $330 million, net losses were $358 million, or a total loss of 63 cents/sh.  For the fiscal year 2002, ending May 30, 2002, revenues are projected at $900 million, with a net loss of $135 million, or 25 cents/sh.  Resumption of growth in revenues is expected to take place during the 3rd Q of 2002, i.e. during the period ending May 30, 2002.  Breakeven should occur in Q2 of fiscal 2003, i.e. period ending Nov 30, 2002.  Company has no debt, cash of $320 million and a market cap of$1.8 billion, based on 568 million shares outstanding.  While competition looms in the handheld computer market, for example Nokia has taken over leadership in Europe, the OS platform looks solid and growing, particularly in conjunction with partnered promotions such as the recent one with Panasonic.  The stock appears to be reasonably priced for long term growth.

Paramount Resources Ltd. (POU on TSE), Calgary, AB, Tel: (403) 290-3632, Price: Nov 23/01: $13.50, 52-week range: $18.75-12.00.  This is the first mention of the company in this newsletter.  Established in 1978, Paramount is a Canadian oil & gas company with 92% of its revenue derived from natural gas.  It is also involved in the processing, transportation and marketing of its oil and gas production.  Its more than 1.7 million net acres is situated to 3 core areas: central Alberta, NW Alberta and in the Northwest Territories.  The company was involved in capital expenditures of $28.8 million during the 3rd Q ended Sept 30, 2001, compared with $80.8 million in the 2nd Q.  Production during the latest period averaged 232 Mmcf/d of natural gas, compared with 240 Mmcf/d in the 2nd Q, 2,457 Bbl/d of oil & NGL vs 2,082, or combined 41,173 boe.d in the 3rdQ compared with 42,082 boe/d in Q2.  This produced revenues of $111 million in the latest period ($140 million in Q2), cash flow of $66 million, or $1.11/sh ($71 million, or $1.19) and net income of $33 million, or 56 cents/sh, compared with $39 million, or 66 cents/sh in the 2nd quarter.  The slightly lower figures are the result of lower commodity prices and the seasonal nature of production.  For all of 2001, the company forecasts production levels of 230 Mmcf/d of natural gas and 2,500 Bbl/d of oil and natural gas liquids, or 40,833 Bbloe/d.  This will have produced a cash flow of $300 million, or $5/sh based on 59.5 million shs outstanding on a fully diluted basis.  During the 3rd Q, Paramount reduced its debt by $24 million to $271 million.  Forecasts for 2002, based on lower commodity prices, are for cash flow of $200 million, or $3.40/sh, based on average production of 42,500 boe/d.  The company hopes to do additional drilling and construct pipeline and facilities at Cameron Hills in the NWT in the upcoming winter.  It is in the process of bringing onstream significant gas production from the Liard area.  Additionally, Paramount is involved in exploration plays at East Lost Hills in California and in a deep probe at Pine Ridge in Wyoming.  Paramount stock looks to be reasonably priced and with a quite manageable debt level appears to be a takeover candidate, more so than a company like Rio Alto that has considerable debt.

Peyto Exploration and Development Corp. (PEY on TSE), Calgary AB, Tel: (403) 261-6081, Price: Nov 23/01: $3.75, 52-week range: $4.00-1.91.  This is the first mention of the company in this newsletter.  Peyto is a relatively new (November 1998), emerging oil & gas company committed to grow through finding natural gas reserves in Alberta, Canada. Its core area is at Sundance in Alberta’s Central Deep Basin where it has land holdings of 33,000 net acres, its own gas plant with a capacity of handling 48 Mmcf/d of gas and a 80 km gas gathering system. Strong growth continued in the 3rd quarter ended Sep 30/01.  It produced natural gas at a rate of 22.4 Mmcf/d, up 45% from the rate of 15.5 Mmcf/d in the 2nd Q, and 815 Bbl/d of oil & NGL up 31% over the Q2 rate of 621 Bbl/d.  Combined, 3rd quarter production was at a rate of 4,548 boe/d, up 42% from 3,204 boe/d in Q2.  In spite of lower commodity prices, Peyto, due to industry-leading low operating costs that yield high net-backs ($29/boe/d in Q3) produced cash flow of $8.1 million, or 18 cents/sh, during this recent period, virtually unchanged from the $8.2 million in the 2nd quarter.  Capital spending during the recent quarter came to $18.5 million, of which $15.5 million was for drilling compared with $18.6 million in Q2, of which $13.7 million was drilling expenses.  It appears that this aggressive capital spending program has increased proven reserves this year by 10 to 15 million boe, indicating industry low finding costs of $5 to $7/boe.  The 4th quarter has started with a bang and it now looks like the company may exit the year producing at a rate of 7,000 boe/d.  Plans for 2002 continue to call for aggressive exploration with capital expenditures of $60 to 70 million.  Cash flow and a $60 million revolving bank line of credit go to support this.  Anticipated production for 2002 at an average rate of 8,200 boe/d is expected to produce cash flow of $47 million, or $1.05/sh on the 45.1 million f.d. shares outstanding.  With this type of growth and taking into consideration the company’s low cost structure, Peyto stock could trade at a high multiple to cash flow, possibly 6 times, thus indicating a share price of $6.

Progress Energy Ltd. (PGX on CDNX), Calgary, AB, Tel: (403) 216-2510, Price: Nov 23/01: $3.55, 52-week range: $4.25-2.30.  This is the first mention of the company in this newsletter.  Progress is an oil & gas exploration & development company with a focus, over 200,000 net acres, in 4 core areas: straddling the border of SE Saskatchewan & SW Manitoba; Two Creek and Whitecourt, both in west-central Alberta; northeast BC at Milo.  Recently new management has been introduced at the helm of the company to lead an established team already in place. The 3 new top executives came from Encal Energy where they had built up a successful oil & gas company over a 10-year period culminating in the sale of that company to Calpine for $1.8 billion.  Upon joining Progress, the three invested $3.2 million into the company by means of a combination of stock (at $2.43/sh & $2.65/sh) and purchase warrants.  Shortly thereafter, the company raised a further $10.65 million through the sale of 3 million shares at $3.55/sh.  Part of the total proceeds of $13.85 million will be applied to debt, $26.1 million at September 30/01.  The new management team intends to take advantage of opportunities made available during the current period of low energy commodity prices.  For the 3rd quarter ended Sept 30/01, oil & liquid production increased to a production rate of 1,831 bbl/d from 1,728 in the 2nd quarter and natural gas was produced at a rate of 7.9 Mmcf/d compared with 7.7 Mmcf/d in Q2.  Combined, this was 3,156 boe/d in Q3 vs 3,017 in Q2.  The company has decided to not proceed with the planned construction of gas processing facilities at Milo since processing capacity at favorable rates has been secured at the Fort Nelson gas plant.  Management hopes to have PGX stock listed soon on the TSE.  A holding in the stock is a bet that new management can repeat what it has accomplished in the past.

Real Resources  (RER on TSE) Calgary, AB, tel: (403) 262-9077.  Price: Nov 23/01: $3.06, 52-week range: $4.80-2.55.  Last mention of the company in this newsletter was on Aug 31/01 at $2.95.  Real completed an active & successful drilling program in the 3rd quarter ended Sept 30/01.  The company participated in drilling 24 wells resulting in 9 oil wells, 13 gas wells for a 97% success rate.  Oil production during this period increased from a rate of 2,616 bbl/d in Q2 to 2,823 in Q3 and gas production from 9.6 Mmcf/d to 10.4 Mmcf/d.  Combined, production during the 3rd quarter increased 8.2% to 4,563 boe/d from 4,218 in the 2nd quarter.  Because of lower energy prices, cash flow fell to $6.9 million, or 37 cents/sh, during Q3 from $8.0 million, or 42 cents/sh in Q2.  To help combat lower commodity prices, Real has hedged 85% of oil production for the remainder of 2001 at US$25/bbl and 50% of first half of 2002 oil production at US$22/bbl.  For the period of November 2001 to March 2002, it has hedged 75% of its gas production at $3.20/Mcf.  The 4th quarter will not be as active and the company hopes to sell some non-core oil producing properties representing production of 180 bbl/d in order to reduce debt, which appears to be about $40 million.  Production in 2002 is expected to increase to a level of 6,000 boe/d and produce cash flow of $35 million, or $1.85/sh, based on 19 million shares.  If so, Real stock, over the next 12 months, could trade at a multiple of 3 times cash flow implying a stock price of $5.50.

Saputo Inc. (SAP on TSE), St. Leonard, QC  Tel: (514) 397-3024.  Price: Nov 23/01: $23.50, 52-week range: $24.50-15.00.  Last mention of the company in this newsletter was on Dec 28, 2000 at $18.12.  The shares of Saputo commenced trading on the split basis on November 21/01.  The 2 for 1 stock split was effected on the basis of a 100% stock dividend.  The cash quarterly dividend effectively remained the same, now 5.5 cents/sh on the split basis compared with last quarter’s rate of 11 cents on the old basis.  While revenues increased in the 2nd quarter ended Sept 30/01 to $897.7 million from $876.4 million in the 1st quarter, operating earnings and net profits remained pretty much unchanged.  For example, net earnings in Q2 were $41.5 million, or 40 cents/new share, compared with $40.3 million, or 39 cents/new share in Q1.  Cash flow was the same for both periods, $61.3 million.  Higher US revenues did not seem to flow though to the bottom line in spite of a cheaper Canadian dollar when it comes time for reporting.  The company believes in the second half of this year there will be opportunities to lower costs by more effective integration of its Quebec cheese operations with the western Canada operations of Dairyworld acquired last December.  Saputo has increased its capital expenditure budget for the year to $60 million from $52 million, of which one-half has already been spent in the 1st 6 months.  $6 million of this has been spent towards the integration process of Dairyworld.  Saputo’s balance sheet is in good shape.  To date, the company has reduced long-term debt by $40million, $30 million of this in the last quarter.  Debt now stands at $652 million, contrasted with shareholder’s equity of $824 million.  With some rationalization, earnings for the year could move up to $1.65/sh., based on 102.8 million shares outstanding on the split basis.  A 15 multiple to earnings produces a share price of $24.75.  A higher multiple could be awarded Saputo if significant sequential growth were to appear.

Schuler Homes Inc. (SHLR on NASDAQ), El Segundo, CA, Tel: (310) 648-7200, Price: Nov 23/01: $17.40, 52-week range: $18.70-7.88.  Last mention of the company in this newsletter was on Dec 26, 1999 at $6.50.  Schuler Homes announced that it will be merged into D. R. Horton, Inc. through a cash and stock transaction, based on the 15-day average of D. R. Horton’s closing stock price.  Closing could take place prior to 2001 year end.  This means that DDIN will cease following SHLR, but expects, at some later date, to make comments on DHI listed on the NYSE’ a company which, at first glance, looks promising.

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