May 31, 2002 Beazer
Homes USA, Inc. (BZH on NYSE), Atlanta, GA.
Tel: (404) 250-3420. Price: May 31/02: $78.22 Nov 23/01:$59.90, 52-week
range: $95.05-41.00. Last and
first mention of the company in this newsletter was at $59.90 on Nov
23/01. At the time we mentioned that Beazer’s stock
could reach $80 if the market awarded it a 9 times multiple of projected
earnings of $9/sh. Shares actually
rose to as high as $95. The
company is now projecting net of $10/sh for fiscal 2002 ending Sept.
30. 2Q March earnings were $2.56 up 33% from last
year’s $1.92 and 6 mos. Profits were $5.02 up 43% from last rear’s $3.52.
During the last quarter Beazer closed new home
sales of 2,439 and already in this quarter orders for the month ended
April 30 were 1,621, a 49% increase.
With the company’s forecast and again using a multiple of 9,
due to the cyclical nature of housing construction, a share price aim
of $90 is produced. Boomerang
Tracking Inc. (BMG on TSE), Montreal QC, tel:
(514) 234-8722, Price: May 31/02: $2.15, 52-week range: $3.99-1.75. This is the first mention of the company in
this newsletter. The Company
assembles, markets & distributes the Boomerang Tracking cellular-based
system that utilizes wireless systems of major telecommunication companies
to locate stolen automobiles, heavy equipment & valuable objects. In only 3 years, Boomerang has built up 100,000 customers paying
$10/mo for the service. Starting
from a base in the province of Quebec, it is now moving into Ontario. The company is preparing for entry into the
US. To date the Boomerang Tracking
System has been instrumental in the recovery of $76 million of stolen
vehicles, marine craft & heavy equipment, excluding incidental recoveries. Insurance companies are recognizing this and
are modifying their policies to include this service, even for cars
already supplied with manufacture-installed GPS systems. 3Q ended Jan 31/02 revenues increased 44% to $4.4 million, bringing
the 9-month total to $12.6 million, a 48% increase. Net for the nine-month period was $1.4 million,
or 6 cents/sh based on the 22.3 million shares outstanding. Company has no debt. Boomerang will most likely report full year
earnings only in the first week of July. CPL
Long Term Care Real Estate Investment Trust (CPL.UN on TSE), Toronto, ON,
Tel: (416) 929-5450. Price: May 31/02: $15, 52-week range: $15.90-10.65. Last mention of the investment trust was at
$16.50 on Dec 26/99. On May
1, 2002, Retirement Residences Real Estate Investment Trust (RRR.UN
on TSE) has purchased CPL Long Term on a unit exchange basis, 1.2 units
of RRR for each unit of CPL. Together, the resulting entity should continue
to do well. It is this newsletter’s intention to comment
on RRR at some later date. RRR
pays $0.0875/unit monthly, so that at $12.50, the units trade to yield
8.4%.
Canadian
Medical Laboratories Ltd. (CLC on TSE), Mississauga, ON Tel: (905) 565-0043 Price: May 31/02: $31.20,
52-week range: $33.10-17.36. Last
mention of the company in this newsletter was at $25.15 on Feb 22/02
and first mention was at $6.20 on August 19, 1997. The company reported excellent 2Q earnings
for the period ended March 31/02. Revenues
increased 46% to $67 million and net income 65% to $11.4 million, or
56 cents/sh on the 21 million shares outstanding. The company is on track to earn possibly more
than the $2/sh mentioned in the Feb 23/02 edition. The share price has now exceeded the target
mentioned in that issue.
Charter
One Financial, Inc. (CF on NYSE), Cleveland, OH, tel: (216) 566-5300. Price: May 31/02: $36.20, 52-week range: $36.20-23.40.
This is the first mention of the bank in this newsletter.
Charter One, the 25th largest bank in the US, has
$38 billion in assets & has 456 branches spread out: 113 in Ohio,
95 in Michigan, 87 in Illinois, 126 in NY, 26 in Vermont and 9 in Massachusetts. It has a strong retail-banking component with $25.6 billion in deposits.
The bank is currently growing deposit-related revenues at a 20%
annual rate. It has been very
successful in attracting deposits through promotions and retaining them.
It opened 141,700 checking accounts during 1Q and now has 1.3
million checking accounts. 1Q net was up 22$ year/year to $140 million,
or 62 cents/sh on the 220 million shares outstanding, and was up 5%
sequentially over the December quarter.
Results produced a 1.49% return on average assets and a 19.3%
return on equity. Management
sees earnings of $2.55/sh for 2002 and analysts predict $2.85 for 2003. The bank recently upped its quarterly cash
dividend by 10% to 22 cents/sh. It
also paid a 5% stock dividend on Sept. 28/01.
A 15 multiple to next year’s earnings implies a share price of
$43. Colonial
BancGroup, Inc. (CNB on NYSE), Montgomery, Alabama, tel: (334) 240-5105. Price: May 31/02:
$15.40, 52-week range: $16.19-11.52.
This is the first mention of the bank in this newsletter. After two small acquisitions in the Palm Beach,
FL and Dallas, TX areas, the bank has $13.6 billion in assets with 266
offices in Alabama, Florida, Georgia, Nevada, Tennessee and Texas. 1Q earnings increased 17% to 34.2 million,
or 29 cents/sh. Return on assets
were 1.09% and on equity 15.8%. Management
indicates that earnings for the year could attain $1.35/sh on the 120.2
million shs outstanding. Analysts
predict a 10% gain for 2003 to $1.35/sh. A 12.5 multiple to this indicates
a share price of $17, which, combined with the 3.3% yield on the 52
cents dividend, would allow for a total 13% return over a year.
Flagstar
Bancorp, Inc. (FBC on NYSE), Troy, MI, tel: (248) 312-2000. Price: Pre-split May 31/02:
$28.35, 52-week range: $34.13-13.62.
This is the first mention of the bank in this newsletter. With $6.4 billion in assets, Flagstar operates
76 banking centers (27 are in Wal-Mart) in southern Michigan and Indiana.
Flagstar also operates 73 retail loan origination centers located
in 17 states and 15 correspondent lending offices located across the
US. The bank is one of the largest
originators of residential mortgage loans in the US.
In the first 4 months of this year, Flagstar has closed $11.9
billion in residential mortgage loans, a $3.1 billion increase over
the corresponding period a year ago. 1Q earnings increased 114% to $25.5 million,
or $1.25/sh, based on 19.5 million shares outstanding. This represented an annualized return on average
assets of 1.55% and an outstanding annualized return on equity of 34%.
Flagstar announced a 3 for 2 split by means of a dividend payout
for May 31/02 and a slight increase in dividend to 24 cents on the split
basis compared with 32 cents pre-split. Earnings estimates, on a pre-split basis, were
for $4.15/sh this year and $4.30 for next. An 8 multiple to these cyclically influenced earnings indicates
a share price of $33.
Gentry
Resources Ltd. (GNY on TSE), Calgary, AB, tel: (403) 264-6161. Price: May 31/02: $1.17,
52-week range: $1.50-0.70. This
is the first mention of the company in this newsletter. Gentry has been growing production through
the drill-bit. Although oil
represents 60% of current production, natural gas production is taking
on more importance and will show a boost later this year and into 2003. 1Q/02 production of 1,770 boe/d compares with production of 1,635
boe/d in 4Q/01 and 1,529 boe/d in 3Q/01 from 5 core areas: southern
Alberta, east-central Alberta, south-western Saskatchewan, south-eastern
Saskatchewan and south-western Manitoba.
Gentry has been increasing its land holdings, particularly in
the gas-prone area at Princess, Alberta.
Production from this area alone should attain 12 Mmcf/d in September,
so that GNY’s 50% share will boost Gentry’s production significantly
over current production of 4.4 Mmcf/d.
With improving commodity prices, the company is on track to generate,
over the next 12 months, cash flow of $7 million, or 30 cents/sh based
on 22.5 million shares outstanding. If growth continues at the prevailing rate,
a 5 times multiple to cash flow implies a share price of $1.50. An added attraction is Gentry’s 40% ownership
of Stratic Energy Corporation that has oil and gas concessions in West
Africa.
Nortel Networks Corporation (NT on TSE and NYSE), Brampton
ON, Tel: (905) 863- 0000. Price: May 31/02: $3.25, 52-week range: C$22.92-3.25.
Last mention of the company in this newsletter was at $8.70 on
Feb 23/02. First mention was on June 22/01 at $13.50. The company expects 2Q revenues to be flat
to down 5% from the US$2.9 billion in 1Q.
It will be cutting another 3,500 jobs bringing the work force
down to 42,000. With the continuing
slashing of expenses, it now expects to attain a beak-even cost structure
of $3.2 billion on a quarterly basis and this by the 4Q of this year. The company has a cash position of US$3.1 billion and US$3.5 billion
of available credit lines. This
should accommodate the expected the losses of $2.5 billion expected
over the remainder of the year. Nortel
will be aiming to do some major financing before then, possibly in the
form of a convertible debenture. The
stock currently trading at US$2.21 produces a market cap of $7.1 billion,
a figure representing 59% of the US$12 billion projected revenues over
the next 12 months. This appears
to be cheap. NT stock is probably trading pretty close to
its bottom and may be considered a buy on speculation that it will be
a survivor.
Repadre
Capital Corporation (RPD on TSE), Toronto, ON, tel: (416) 365-8090, Price: May 31/02: $8.39,
52-week range: $8.95-2.70. This
is the first mention of the company in this newsletter. Historically, Repadre participated in mineral
exploration by means of royalty interests. While it still maintains this involvement, royalty income accounts
for about $2.5 million in annual revenues and this will increase in
2003 when the Diavik diamond mine in the Northwest Territories comes
on stream, Repadre, over the last few years has moved into direct mining
participations. This has come
about in partnership with Gold Fields Limited, whereby Repadre’s 18.9%
interest in Gold Fields Ghana Limited gives it 18.9% participation in
two gold mines having a total resource of 16 million ounces of gold
and which currently produce 525,000 to 550,000 ounces of gold on an
annual basis at a cash cost of about $165/oz. There is considerable potential for realizing
increased production at this Ghanaian complex. The company wisely took advantage of its higher
stock price as a result of strong gold prices by floating an equity
issue of 3 million shares at $8.20/sh, with a green shoe of an additional
450,000 shares. When completed,
this will bring Repadre’s cash position to $43 million. This could allow the company to expand, possibly through acquisition.
There will be close to 41 million shares outstanding on a fully
diluted basis, awarding Repadre a market cap of $344 million.
The company’s share of Ghanaian gold production of 104,000 oz/year
could throw off $15 million to Repadre in cash flow.
The present market evaluation is at a hefty multiple to this,
so Repadre will have to put to good use their cash position to create
further returns.
River
Gold Mines Ltd. (RIV on TSE), Toronto, ON, tel: (416) 360-3743, Price: May 31/02: $2.80,
52-week range: $2.90-0.81. This
is the first mention of the company in this newsletter. The company operates the Eagle River gold mine
near Wawa, Ontario. Over the
last 6 years it has produced 372,000 ounces and there appears to be
remaining 304,000 ounces. The
mine is currently producing at a rate of 75,000 ounces of gold a year. Production to date has come from zones down to a depth of 280 metres.
A new shaft has been sunk which will allow exploration and development
at depth. The company feels there is excellent potential for an expansion
of reserves on this property. The
mill is located 17 km to the north and has a capacity to process 1000
tonnes a day so that there is some 40,000 tonnes a year of excess capacity
available to process additional ore.
The company has additional exploration potential at Magnacon
and Mishi, both of these properties being adjacent to the mill.
Cash flow for 2002 may attain $12 million, or 30 cent/sh on 40.3
million fully diluted shares. The
shares on an operating basis appear to be fully priced, trading at a
9.3 multiple to cash flow generated, but they nevertheless have speculative
appeal on potential for exploration success. Spire
Energy Ltd. (SEY on TSE), Calgary AB, tel: (403) 269-9016, Price: May 31/02: $2.40April
13/02: $2.14, 52-week range: $3.20-1.40. Last mention of the company in this newsletter was at $2.14 on April
15/02. Quintana Minerals Corporation
has made an offer to purchase all the shares of Spire for a cash consideration
of $2.41/sh, conditional on 66.6% of shares being tendered. Since the 2 controlling shareholders account
for 59% of issued shares and that the 3 officers of the company have
agreed to exercise their stock options and also tender, the take-over
is a fait accompli. Too bad
for the minority shareholders, particularly those that paid higher prices
for the stock. But, hey, the president cashes in for almost
$900,000 and 2 other officers each make about $350,000 in options for
2 years work. So, nothing wrong
with that! Kind of reminds one of Allied Oil, Avid Oil, Courage Energy, Magin,
Player and Tethys, all taken over in favour of the buyer.
Summit
Resources (SUI on TSE), Calgary, AB, tel: (403) 269-4400. Price: May 31/02:
$7.36, 52-week range: $7.40-3.70. Last
mentioned in this newsletter on August 30/01 at $5.10. On May 10, Paramount Resources Ltd. made an
offer to purchase all the outstanding shares of Summit for a cash consideration
of $7.40/sh. This is a fair
price and Paramount should do well by it also.
Tusk Energy Inc. (TKE on TSE), Calgary, AB,
Tel: (403) 264-8875. Price:
May 31/02: $1.40, 52-week range: $1.54-0.75. Last mention of the company
in this newsletter was at $1.01 on Feb 23/02 and the previous mention
was at $0.75 on Dec 29/98. Tusk
produced excellent earnings in 1Q/02.
Production increased to 1,712 boe/d up 19% from the December
quarter. This produced cash flow of $2.1 million, or 13 cents/sh on the 17.9
million shares outstanding. 2Q
production should average 1,850 boe/d, 55% oil, 45% gas. For the full year cash flow should attain $9
million, or 50 cents/sh. and should cover expected capital expenditures
of $9 million. Net debt is $14
million. Net asset value has been calculated at $2.06/sh.
The company has a strong inventory of drilling targets that warrants
continued growth in production. That
being the case, a 4 times multiple to expected cash flow points the
way to a $2 share price.
Ultima
Energy Trust (UET.UN on TSE), Calgary, AB,
tel: (403) 264-5709. Price: May 31/02: $5.40, 52-week range: $5.85-3.65. This is the first mention of the trust in this
newsletter. New management took
over last year and changed the name of the oil & gas income trust
from Maximum Energy. Initially,
they cleaned up the mess by getting rid of non-core properties in order
to pay down debt. Once completed, management increased production
from ongoing properties and also made acquisitions at reasonable price
levels. For example, in December
Ultima acquired, for $35 million in cash, light oil producing properties
and associated facilities producing 1,400 boe/d, thus paying the equivalent
of $25,000 per producing boe/d. Production
has been increasing ever since, with 1Q ended March 31/02 averaging
3,265 boe/d, compared with 2,094 during the corresponding period a year
ago. Ultima, as a consequence, is one of the few
trust that have been increasing payouts to unit holders over the last
few months, from 6 cents monthly in March to 7 cents in April &
May and to 8 cents for June. In
early May, Ultima closed a public financing of $25.5 million through
the sale of 5 million units at $5.10/unit.
Proceeds of this will be used to reduce bank debt and to fund
development on existing properties. Net bank debt at March 31/02 was at $28.2 million.
Cash flow for the year should be about $25 million, equivalent
to $1.05/unit on the 24 million units to be outstanding.
If payouts remain at the same level, the units will yield 17.8%
on the 96 cents disbursements, most of which will not be taxable because
of loss carry forwards.
Upton Resources Inc. (URC on TSE), Calgary AB,
tel: (403) 263-7373, Price: May 31/02: $3.85, 52-week range: $4.35-2.57. Last mention of the company in this newsletter
was at $2.85 on Sept 28/01. 1Q
ended March 31/02 production was at an annual rate of 4,483 boe/d, slightly
less than the rates of 4,578 in the December quarter and the 4,802 a
year ago. Again, this is primarily
light oil, 4,285 bo/d, while natural gas production continues to increase
and averaged 1.2 Mmcf/d. Upton
made a significant acquisition late in the quarter that will produce
positive results. It acquired privately held Empire Energy for
$30.9 million, consisting of $14 million in cash, assumption of $4 million
of debt and by issuing 3.5 million shares.
This will bring in oil production of 1, 700 bo/d along with a
land position of 128,400 net acres.
This works out to a very reasonable purchase price equivalent
to $18,176 bo/d. Average production for 2002 should now average
6,100 boe/d, exiting the year at 7,000 boe/d. Production for 2003 should
average 7,200 boe/d, an 18% increase over 2002. |