| An SI Board Since October 1998 |
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CHP |
| Emcee:
Yonni
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Type:
Unmoderated
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O.K. folks, here is a new one for you that I am particularly bullish on. The company is called Chapters and it is very similar to Barnes and Nobles and Borders in the U.S. It was formed out of the old Coles bookstores and Smithbooks. It has a young and dynamic management team and has some top notch directors and consultants (Main shareholders are Canadian General Capital (9%), HOOP (10%), Ontario Hydro (10%) and Barnes and Noble (17%)). The company now has 44 superstores and plans to have 75 open by the Year 2000. The company reported earnings of $0.82 in 1997, $0.90 in 1998 and is on track to report around $1.00 this year. However, based on my own estimates (which are below the street estimates), the company should report $1.40 for fiscal 1999 and nearly $2.00 in 2000. This is due to the quick amortization of store opening costs (12 months) and the reduction of long term debt which should be extinguished by the end of 1999. The company has enough equity and a line of credit for 80 million Canadian. Given that the Canadian market does around $2 billion in sales and is estimated to grow at around 10-15% for the next decade, Chapters should be a great growth stock.
Remember, Amazon.com is not as effective in Canada as you have to pay customs duties and Chapters (along with Canada's Globe & Mail) will be launching their own Internet book site shortly. Combine this with a Starbuck's in every superstore and store staff incented with stock and options, I think this is a great opportunity.
Currently trading at $18.75 CDN. Given a 15X multiple times Year 2000 earnings (their fiscal Year 2000 ends March 2000), I have an 18 month target of C$30. This would be a 60% return over the next 18 months.
Note: I do own this stock for my personal account.
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