Galileo Small/Mid Cap

GlobeinvestorGOLD.com, February 5, 2008 Author: ANDREW ALLENTUCK

WINNIPEG (GlobeinvestorGOLD) – For Peter Hanley, 2007 was a bonanza.

His Galileo Small/Mid Cap Fund generated an 18.4-per-cent return for the year, more than twice the 7-per-cent average return of peers and more than seven times the 2-per-cent return of the BMO Nesbitt Burns Canadian Small Cap Index in the period. The return put the portfolio near the top of all Canadian small to mid cap funds ranked by one year performance. Mr. Hanley, a vice president and director at Galileo Global Equity Advisors Inc., in Toronto, has co-managed the $8-million portfolio since inception in November, 2006, with Galileo President Michael Waring.
“We look for strong growth of the industry of which the company is a part, a strong balance sheet with good gross margins, a high return on equity over a period of several years, good cash flow and a reasonable valuation,” Mr. Hanley said. “We don’t mind paying for compelling opportunities and with our relatively small basket of stocks, we can watch each one closely. If a company does not deliver on its targets, we are prepared to dump it.”

Fairfax Financial Holdings Ltd.  is a Toronto-based company that operates several property and casualty and reinsurance businesses. Shares purchased at an average cost of $270 have recently traded at $317.99. Under the direction of chairman Prem Watsa, the company manages $18-billion of assets. Anticipating rising defaults in the U.S. housing market, Mr. Watsa bought credit default swaps that boosted the Fairfax balance sheet. As a result, the book value of the company should rise to $230 (U.S.) per share for the year ended Dec. 31, 2008 from $172 a year earlier and $140 for 2006, Mr. Hanley said. Within 12 months, shares should hit $345, he suggested.

Naikun Wind Energy Group Inc.  is a Vancouver-based company that is developing an offshore wind farm in the Queen Charlotte Islands. Shares purchased at an average cost of $1.98 have recently traded at $3.02. The wind in the straits between the Queen Charlottes and the mainland of British Columbia is equivalent in energy potential to an oil reserve that can produce 100,000 barrels per day with no depletion, Mr. Hanley noted. Discounted cash flow for the year ended Sept. 30, 2011, the first year the farm will operate, should be $2.70 per share and will rise to $4.00 by 2017, Mr. Hanley said. The net asset value by 2017, when the project is competed, should be $12.00 per share, he predicted.

Agrium Inc.  is a Calgary-based fertilizer producer. Shares purchased at an average cost of $48.00 have recently traded at $64.55. Investments in global agriculture are thriving. As disposable incomes rise in the Far East and consumers elect to eat meat in place of rice, the demand for fertilizers will grow. Yet there are risks. A decline in grain prices, lower demand for ethanol or a major decline in the price of conventional oil could reduce fertilizer prices, Mr. Hanley said. Earnings for the year ended Dec. 31, 2008 should rise to $5.50 (U.S.) per share from $2.87 a year earlier, he forecasted. Within 12 months, shares could hit $83.00, he added.

For further information: Dan Hall, Executive Vice President, (416) 594-0606