July 4, 2002 ATP
Oil & Gas Corporation (ATPG on NASDAQ), Houston TX, tel: (713) 622-3311.
Price: July 3/02: $3.05, 52-week range: $12.00-1.47. Last mention of the company in this newsletter was at $3.50 on April
15/02. Gas production in 1Q02
was unchanged from that of 4Q01, averaging 78 Mmcfe/d but prices realized
were higher generating cash flow of $11.5 million, or 56 cents/sh, based
on 20.3 million shares out. The
company is paying down its credit facility $2 million a month so that
ATP is getting a good return on the remaining 5.5 million of generated
funds committed to development. The
company has agreed to repay $18 million of its current credit facility
over the remaining 9 months of the year.
It expects to generate $34 million of cash flow during this period
allowing it to spend $16 million on development expenditures on South
Marsh Island and Eugene Island in the Gulf of Mexico as well as some
on Block 47/10 of the Helvellyn Field in the southern North Sea.
If the company is successful in its juggling act with generated
funds, bank debt will be down to $48 million at year-end from $70 million
at the start of the year and would then be in a stronger position to
negotiate a new facility in order to accelerate growth. In the meantime, the stock is cheap trading
at 1.4 times anticipated cash flow of $2.20/share in 2002. A 2.5 multiple brings the share price to $5.50
Alimentation
Couche-Tard Inc. (ATD.B on TSX), Laval, QC, tel: (450) 662-3272
Price: July 4/02: $33.95, 52-week range: $35.25-15.50.
Last mention of the company in this newsletter was at $34 on
April 15/02 and first mention was on Sept 28/01 at $17.50.
The company is continuing to expand in the US. It has acquired another small chain, this time the 16 Handy Andy
convenience stores in the Indianapolis area which will contribute $31
million in sales. This brings
the total to 247 US stores, in the right direction for attaining the
targeted 1000 stores. This goes along with the 1710 stores in Canada.
Furthermore, Couche-Tard has placed a US$80 million bid for the
450 store chain of Hudson, Ohio based Daisy Mart Convenience Stores
Inc., operating under bankruptcy protection, and expects to know the
results of this bid by August. Meanwhile, the company announced results
for fiscal 2002 ended April 28, 2002. Sales for 4Q increased 52% to $566 million.
Same strore sales grew 2.7%.
For the full year, sales increased 46% to $2.4 billion.
Same store sales grew 5%. Net
earnings for 4Q were $8.7 million, or 20 cents/sh compared with $3.9
million, or 10 cents/sh. For the year, net was $49.1 million, or $1.21/sh
compared with $29.3 million or 77 cents/sh. Operating income for the latest quarter was up 38% to $22.6 million,
providing a profit margin of 4%. For
the year, operating profit was up 37% to $124.8 million, producing an
operating profit margin of 5.1%. The
company has declared a 2 for 1 stock split to take effect July 19. Earnings appear to be headed toward $1.40 (70
cents split)/sh for 2003 and $1.60 (80 cents split)/sh next year. A
25 multipe to this years earnings and a 22.5 times multiple to next
year’s implies a $35 to $36 share price, or $$17.50 to $18 on a split
basis.
Ashanti
Goldfields Company Limited (ASL on NYSE), Accra, Ghana, tel: (212) 697-9191.
Price: July 3/02: $5.45, 52-week range: $6.50-3.05. Last mention of the company in this newsletter was at $2.25 on April
8, 2000. Ashanti’s gold production
from 7 gold mines in Africa was 1.66 million ounces in 2001, down from
1.74 million in 2000. The company
has recently straightened out its balance sheet by means of a series
of manouvres consisting primarily of an early redemption of exchangeable
notes, an early exercise of warrants and the completion of a new $200
million credit facility. The
end result is that there will be less shareholder dilution than originally
proposed, more working capital and an improvement in the debt to equity
ratio to 35% from 53%. This should free up Ashanti to spend money
developing and bringing into production higher grade gold reserves at
its Obuasi complex in Ghana. Issued
stock will eventually increase from 113 million shares outstanding to
157 million. Lonmin PLC holding
would increase from 36 million shares to possibly 45 million bit its
share ownership would drop from 32% to 28%.
Government of Ghana’s holding would increase from 22 million
shares to possibly 27 million but its ownership would drop to 17% from
close to 20%. Although Ahanti’s hedging program would now
be unconditionally margin free, the hedging is, nevertheless, still
there and therefore limits the upside potential if gold prices were
to increase substantially. Earnings
and cash low for 2002 are now pointing to 57 cents/sh and $1.05/sh and
for 2003 the estimates are for 58 cents/sh and $1.10/sh.
Based on this and bearing in mind the lesser potential of a takeover
because of political hang-ups, a share price of $6 to $6.50 over the
next year appears to be reasonable.
CIT
Group
(CIT on NYSE), New York, NY, tel: (212) 536-1390. Price: July 3/02:
$23. Last mention of the company in this newsletter
was at $36 on May 12, 2000 at the time it was being taken over by Tyco
International. First mention
of CIT was at $20.75 on Dec 26/99.
When Tyco bought CIT it paid the equivalent of $9.5 billion for
the company and now by selling to the public the entire CIT by means
of 200 million shares at $23/sh, the price tag becomes $4.6 billion.
The fact of the matter is that while CIT was in the Tyco stable
a fair amount of cleaning up took place.
Lower return businesses were disposed of, operating expenses
were reduced by $150 million and tangible equity ratios were improved. Company management has not yet provided guidance for earnings nor
has a dividend policy been established but earnings for this year should
be about $3.50/sh and next year’s should trend higher. That being the case, a 8 times multiple to earnings would indicate
a stock price of $28.
Chittenden
Corp (CHZ on NYSE),
Burlington, VT, tel: (802) 658-4000, Price: July 3/02: $27.76, 52-week
range: $34.18-21.75. This is
the first mention of the company in this newsletter.
Chittenden is a bank holding company (currently has 5 separate
charters) with total assets of $4.4 billion.
Its subsidiaries include Chittenden Bank, The Bank of Western
Massachusetts, Flagship Bank and Trust Company, Maine Bank & Trust
Company, and Ocean National Bank. It
is the dominant bank in Vermont and has been diversifying through acquisitions
outside the state, namely in Massachusetts, Maine and New Hampshire. Its business is weighted toward commercial banking. With the out of state expansion, 47% of total
loans are now outside Vermont. Recent
returns are 16% on equity and 1.44% on assets. Earnings are estimated at $1.92/sh for 2002,
up from $1.80/sh in 2001 and street estimates are for $2.07 in 2003. The company recently raised its dividend to
20 cents paid quarterly. Chittenden
expects to report 2Q earnings on July 17.
A 15 multiple to next years’ earnings implies a stock price of
$31.
Christopher
& Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (763) 551-5000. Price: July 3/02:
$40.02, 52-week range: $44.80-14.81.
Last mention of the company in this newsletter was at $37.25
on April 15/02 and first mention was at $7.29 on April 8/00, adjusted
for splits. The company continues to do exceedingly well.
Total sales for the 4 weeks ended June 29/02 rose 36% to $23.5
million. Same store sales were
up 13%. For the 4 months ended
June 29, sales increased 35% to $101.2 Million and during that period
same store sales increased 11%. At June 29, 2002, the company operated 392
stores compared to 319 on June 30, 2001.
For 1Q ended June 1, 2002, net income increased 49% to $9.8 million,
or 37 cents/sh. Based on 25.5
million shares outstanding, street estimates are for earnings of $1.65/sh
for this year and $2.00 for next year.
Giving a 25 multiple for next year’s outlook, based on what appears
to be an established growth record, implies at stock trading price of
$50 over the next 12 months.
Commerce
Bancshares
(CBSH on NASDAQ), St.Louis, MO, tel: (816) 234-2081, Price: July 3/02:
$43, 52-week range: $46.85-32.98. This
is the first mention of the company in this newsletter. The company is a bank holding company with $12.3 billion in assets
and conducting business through 340 locations in Missouri, Illinois
and Kansas. The bank is expected
to announce 2Q earnings on July 10 of 73 cents/sh up from last year’s
69 cents. Street estimates for
the year are for $2.96 compared with last year’s $2.73 and are expected
to gain another 10% next year to attain $3.30/sh.
Recent return on assets has been 1.55% and return on equity 15.2%.
Dividends have increased for 34 consecutive years.
The company has a share buyback program to repurchase 3 million
shares (65.6 million outstanding) and purchased 118,000 in the 1Q. Because this bank holding company is on a growth curve, a p/e multiple
of 15 could be awarded the stock, implying a possible share price of
$49.
First
Midwest Bancorp (FMBI on NASDAQ), Itasca, IL, tel: (630) 875-7450, Price: July 3/02:
$26.65, 52-week range: $32.16-23.04.
The company, with assets of $6 billion is a banking company conducting
business through 70 offices in 40 communities primarily in northern
Illinois and, in particular, in and around the suburbs of Chicago. 1Q
earnings were strong, 45 cents/sh vs. 38 cents producing a return on
assets of 1.55% and a return on equity of 19.4%.
Earnings for 2Q should be announced on July 17 and are expected
to equal the strong 1st quarter results.
For the year, the company is forecasting growth of 11%-12%.
This implies earnings of $1.83/sh.
Street estimates for next year average $2.00. The bank has an active share buyback program, purchasing about 500,000
shares each quarter. There are
48.5 million shares outstanding. 5
for 4 stock splits have taken place in December 2001 and in December
1999. Because of its growth curve, the bank’s stock
could be awarded with a 15 multiple to earnings, implying a stock price
of $30 over the next 12 months.
MAAX
Inc.
(MXA on TSX), Ste-Marie-de-Beauce, QC, tel: (418) 387-3641, Price: July
4/02: $20.46, 52-week range: $21.75-8.70.
Last mention of the company in this newsletter was at $12.55
on March 1, 2000. The company
reported excellent results for the 1Q ended May 31, 2002.
Sales were up 20% to $162 million and on the strength of better
margins at 10.2% vs. 8.7% earnings excluding goodwill amortization increased
by 42% to $10.8 million, or 44 cents/sh, from $7.5 million, or 31 cents/sh. The bathroom & kitchen division accounted
for 85% of sales and were up 16% to $133 million. Sales in the spa division, which had been a
laggard, were up an impressive 46% to $29 million and represented 15%
of sales. MAAX, in the last
2 years, has taken on the production of kitchen cabinets to go along
with their well-established bathroom items, mainly showers. Home Depot continues to be the company’s most important customer.
MAAX has been opening more showrooms closer to customers and
has, also, been able to make use of excess manufacturing capacity to
accommodate the increasing demand for high-end kitchen and bath products.
Earnings should attain $1.35/sh this year, fiscal 2002, based on 24
million shares outstanding. A
premium multiple of 20 times, indicative of good growth potential, points
the way to a $27 share price.
Old
National Bancorp (ONB on NYSE), Evansville, IN, tel: (812) 461-9099, Price: July 3/02:
$24.88, 52-week range: $26.00-22.38.
This is the first mention of the company in this newsletter. Old National is a $9.2 billion bank holding
company headquartered in Evansville, Indiana and operating 140 banking
offices in Indiana, Illinois, Ohio, Kentucky and Tennessee. 1Q earnings were particularly strong at $27.9 million a 26% improvement
over last year $22.1 million. On
a per share basis, the increase was 31.4% to 46 cents/sh vs. 35 cents,
based on 61.2 million shares out , down from last year’s 63.1 because
of an ongoing stock repurchase program.
Street estimates are for earnings of $1.82/sh this year and $1.95
for next year. A 14 multiple
to next year’s earnings implies a stock price of $27.30.
The company is expected to announce 2Q results on July 25 at
which time a better understanding of prevailing trends will add visibility.
Purcell
Energy Ltd. (PEL on TSE) Calgary, AB,
tel: (403) 269-5803, Price: July 4/02: $2.60, 52-week range: $4.23-2.35. Last mention of the company in this newsletter
was at $3.05 on Jan 23/02. 1Q02
production averaged 4,689 boe/d down from 4Q01 production of 5,111 boe/d
and 3Q01 production of 5,196 boe/d.
This compares with average production rate of 4,604 for all of
2001. Management indicates that
it anticipates reaching its target of 6,000 boe/d for 2002. It will be interesting to see where the company
stands on this when reporting 2Q results around August 20. The company has been employing the cash flow
generated from its first class Fort Liard project, which produces gas
at a rate of 21 Mmcf/d, and applying it to exploration and development
elsewhere. This applies to oil in Alberta at Rainbow and
Sturgeon Lake and in Saskatchewan at Grassdale and Griffin. For natural gas, development is taking place
in Alberta at Peco and Nisku. Last
year, Purcell bought back 2.2 million shares at an average price of
$3.51/sh. This year, the company
has put into place a buyback program for 2.3 million shares. There are currently 26.8 million shares outstanding.
The company may very well feel more inclined to pay down some
of the $27 million of debt.
Reitmans
(Canada) Limited (RET.A on TSE), Montreal, QC, Tel: (514) 384-1140, Price: July 4/02:
$41, 52-week range: $47.00-18.05. Last
mention of the company in this newsletter was at $33.71 on April 15/02
with the first mention being at $25.75 on Jan 23/02. The company continued on its growth track reporting
1Q03, period ended May 4/02, sales increase of 8% to $126 million.
Comparable store sales increased by 2%.
Net earnings increased by 21% to $5.1 million, or 60 cents/sh.
and represents a net profit margin of 4.07%.
These results do not include those of Shirmax, which purchase
transaction closed on June 7, 2002. Reitmans, inclusive of Shirmax, nw operates
801 stores through 7 divisions: 328 Reitmans, 149 Smart Set/Dalmys,
122 Penningtons, 28 RW&CO, 69 Addition-Elle, 39 Addition-Elle Outlet
and 66 Thyme Maternity. The
company is on target to produce sales revenues of $760 million. If margins are maintained at 4%, this would produce net income of
$30.4 million, or $3.50/sh based on 8.7 million shares outstanding. A minimum 15 multiple to these earnings produces
a share price of $52. Sobeys
Inc
(SOB on TSX), Stellarton, NS, tel: (902) 752-8371, Price: July 4/02:
$42.45, 52-week range: $45.75-22.50.
Company, which has its origins in 1905, operates a food retail
& distribution network in Canada consisting of 1350 stores and 27
distribution centers. 400 are corporate stores and 950 are under
franchise. Banner names are
primarly IGA 550 stores, Sobeys 134 stores and Price Chopper. In addition, company operates 65 Lawtons drugstores in the Atlantic
provinces. Total sq.footage
of selling space has been increasing from 20 million in 2001 to 21.6
million in fiscal 2002 and currently stands at 22.6 million sq.ft. in
this now being fiscal 2003. Company
sold SERCA, its food service operations, to Sysco Corporation (SYY on
NYSE) for $411 million on March 30, 2002 in order to concentrate on
retail distribution. In so doing, Sobeys debt to capital ratio was
lowered to 29% from 43$. For
fiscal 2002 ended May 4, 2002 and excluding SERCA sales increased 6.2%
to $9.73 billion, 4Q sales increased 5.7% to $2.42 billion.
Same store sales including those that had in-house expansion
increased 4.9% during the year and 3.7% in the most recent quarter. Operating earnings, ex-SERCA, were $142 million,
or $2.25/sh, for the year up from last year’s $91 million, or $1.50/sh.
4Q operating earnings were $37 million, or 56 cents/sh compared
with last year’s $25 million, or 39 cents/sh.
Trading margins in the 4Q improved to 4.28% from 3.72% a year
ago and for the full year to 4.09% from 3.51%.
Company has just increased its dividend by 50% to 9 cents quarterly.
This year, fiscal 2003, changes in accounting relating to amortization
will be kicking in with the effect that reported earnings will be higher. Had fiscal 2002 been reported on this basis,
operating earnings would have been $2.45/sh rather than $2.15. For the current year, management is forecasting
an increase of 14% in earnings on a 7% increase in sales. This implies operating earnings of $2.80/sh.
If markets award a p/e multiple of 18 to these earnings, Sobeys
stock would then trade at $50.
Sovereign
Bancorp (SOV on NYSE),
Philadelphia, PA, tel: (877) 768-2265, Price: July 3/02: $13.81, 52-week
range: $15.90-8.13. This is
the first mention of the company in this newsletter.
Sovereign headquartered in Philadelphia is the parent company
of Sovereign Bank, a $37 billion financial institution with approximately
530 community banking offices in Pennsylvania, New Jersey, Connecticut,
New Hampshire, Rhode Islandd, Massachussetts and New York.. It is currently the 3rd largest
in Pennsylvania and the 3rd largest in New England. Much of its size was created by integrating
the retail branches of BankBoston in New England, divested due to the
Fleet transaction. Sovereign
is in transition to switch into a bank charter from a thrift charter
which should materialize over the next year and a half.
Charter banks command a higher P/E ratio in the market place,
14 to15 times vs. 11 to12 for a thrift.
A good example of this is the recent transition involving Charter
One, currently trading at a 14 multiple.
Management has provided guidance indicating earnings of 32 cents/sh
for 2Q02 and $1.30/sh for the year, $1.45 for 2003, $1.75 for 2004 and
$2.00 for 2005. If this materializes, a share price of $30 could be attained at
some point 2 to 3 years down the road.
Nearer term, SME stock could trade at 14 times anticipated earnings
of $1.45 for next year, bringing it to $20.
Storm
Energy Inc. (SME on TSE) Calgary, AB, Tel: (403) 264-3959, Price: July 4/02:
$14.17, 52-week range: $15.49-7.55.
Last mention of the company in this newsletter was at $9.70 on
Jan 23/02. First mention was
at $2.30 on Dec 26/99. Storm
intends to reorganize through a plan of arrangement that would see its
shareholders receive units in a new oil and gas income trust that will
hold approximately 75% of Storm’s assets (weighed largely to natural
gas), and a separate high-growth, exploration-oriented producer (New
Storm) that will hold certain of Storm’s light oil weighted assets and
undeveloped lands. Shareholders would receive a proportionate number of common shares
of New Storm as currently held in Storm Energy and a proportionate number
of trust units in the income trust, or at their choice, a proportionate
number of exchangeable shares. The
rationale in effecting such an arrangement is to help defer an estimated
$10 million of current taxes in 2003.
Shareholders will be asked to vote on this at a meeting planned
for a date prior to August 20, 2002.
Since the company continues to meet with excellent results from
exploration and development, the proposed arrangement should work out
very well for SME stockholders.
TouchTunes
Music Corporation (TTMC on
OTC BB), Las Vegas, NV, tel: (702) 792-7405, price: July 3/02: $0.35,
52-week range: $1.15-0.25. This
is the first mention of the company in this newsletter.
The company is involved in the digital distribution of music
content to interactive, music-on-demand applications.
The first such interactive music-on-demand application is its
digital jukebox. Revenues are
generated fromsales and leases of the Digital Jukeboxes to jukebox operators
in the US as well as from the music service contracts associates with
such sales. As at March 31, 2002, the Company had delivered
a total of 4,925 Digital Jukeboxes as compared with 3,270 on March 31,
2001. The company appears to
be approaching profitability, judging by 1Q results for the period ended
March 31/02. Over the last 4
quarters, TouchTunes has generated sales revenues of
$21.1 million. March
revenues were $5.9 million ompared with $4.3 million a year ago. This produced an operating income of $65,623,
its first. Breakdown of the
$5.9 million indicates that revenues from Digital Jukebox sales amounted
to $2,950,000 compared with last year’s $2,221,000; music service revenues
were $1,662,000 compared with $924,000 and Digital Jukebox leasing and
financing revenues were $1,080,000 compared with $1,126,000. The improvement in profitability has come about through a restructuring
which involved cutting payroll to 92 from 140.
Management considers the company has a 35% share of the market. It points out that of the 250,000 to 350,000
jukeboxes operating across the US only about 4,000 a year are being
replaced with those of the newer technology.
The company appears to be on tract to sell 1,800 units this year. To date, the company has been financed by the
Canada Economic Development fund in conjunction with the National Bank
of Canada and by three arms of the giant Quebec pension fund, Caisse
de Depot. While there appears
to be 14.8 million shares outstanding, there could be an additional
13.3 million shares to the Caisse de Depot.
In fact, all told there could end up being 43 million shares
outstanding, 62% of which would be owned by the Quebec pension fund.
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