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Manager sure on small-cap selections

Roger Dent is confident he can maintain the momentum of his small-capitalization fund.

For the six months ended May 31, his Mavrix Strategic Small Cap Fund, previously called the Mavrix Emerging Companies Fund, has leaped ahead with a 22.5-per-cent gain. That made it the top performer out of 147 funds in the Canadian small-cap sector in the period.

For the $2.2-million fund, established in 1996, the six-month gain reduces the loss for the 12 months ended May 31 to 26.5 per cent, compared with a 12.9-per-cent loss for the benchmark Nesbitt Burns Canadian Small-Cap Index in the period.

Mr. Dent, vice-president of research at Mavrix Funds Ltd. in Toronto, and the fund's principal analyst, came to Mavrix from Yorkton Securities Inc. He explained the sudden surge in performance as a change of mandate.

"Historically, this fund invested in privately held, non-public companies," Mr. Dent said. "In 1999, those investments produced a return of 120 per cent and then generated losses in the tech meltdown for the next three years. But we have not made any private investments since I joined the fund this January. Now we are looking for unrecognized values in public companies."

Below are three companies he likes now.

Calian Technology Ltd. (CTY-TSX) is an Ottawa-based company that provides satellite technology services to government and corporate clients. It's a major holding at 6.4 per cent of the fund. Unlike Motorola's Iridium LLC, which couldn't generate sufficient sales to pay for building a network of low-earth-orbit satellites, Calian operates other companies' satellite systems, Mr. Dent said. Shares purchased at an average cost of $6.50 have recently traded at $8.35. Mr. Dent forecasts profit for the year ending Sept. 30, 2003, will be 65 cents a share, compared with 41 cents a year earlier, he said. As well, Calian had $18-million in cash for acquisitions at the end of March, and it's generating cash at a rate of 15 cents a share each quarter.

If profit rises to 75 cents a share for the year ended Sept. 30, 2004, the stock could hit $10, Mr. Dent said. The shares closed yesterday at $8.50.

Geac Computer Corp. (GAC-TSX) is a Markham, Ont., developer of enterprise software for large companies. Shares bought at an average cost of $5.34 have recently traded at $5.25 and make up 5.9 per cent of the portfolio. Geac is recovering from taking on what investors regarded as too much debt during an acquisition spree, Mr. Dent said. Geac no longer has net debt and instead is holding $1 a share in net cash, he said. Profit for the year ending April 30, 2004, should rise to 85 cents a share from 68 cents a year earlier, he predicted. Within 12 months, Geac could reach $6.50, he said. The stock closed yesterday at $5.15.

Tusk Energy Inc. (TKE-TSX) is a Calgary-based junior oil and gas producer with 70 per cent of production coming from gas, Mr. Dent said. Gas is currently what energy investors prefer, because its price is determined by market forces rather than geopolitics. Having recently taken over gas producer Sunfire Energy Corp. of Calgary, Tusk should have $1.30 cash flow a share for the year ending Dec. 31, 2004, down slightly from $1.40 this year, he predicted.

Assuming gas holds at $6 for one million cubic feet for 2004, Tusk's additional production should boost the shares, which cost the fund $3.05 each, to $4.50 within the next 12 months, he said. The stock closed yesterday at $3.70.

Andrew Allentuck writes about investments for The Globe and Mail, and reviews books on finance for globefund.com and globeinvestor.com. He is also the author of several books.

This column first appeared on GlobeinvestorGOLD.com. For more exclusive analysis, please see the Web site.

© 2007 The Globe and Mail. All rights reserved.

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