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Absolute Software, Timminco – Mesburis' Manager Picks
Posted: September 24, 2008, 4:30 PM by David Pett

Manager: Paul Mesburis, Mavrix Fund Management
Style: Growth and value
Fund: Mavrix Sierra Equity
Strategy: All capitalization, bottom up focus. Integrating environmental, social and governance factors with fundamental investment analysis.

Buy recommendations:

Absolute Software Corp.
ProMetic Life Sciences Inc.
Timminco Ltd.

Sell recommendation:

Aurelian Resources Inc.



"Wall Street was transformed again last week, as the crisis that started with US subprime housing has claimed many companies in 2008. There has been over US$500 billion in credit losses since last year, and the US government has rewritten the playbook – it took control of AIG with a US$85 billion cash injection, it provided a US$29 billion loan to JP Morgan to purchase Bear Stearns, and it nationalized Fannie Mae and Freddie Mac with US$200 billion of government injections. Now, the US Treasury has proposed a US$700 billion plan to buy “troubled assets” (residential and commercial mortgages) from US financial institutions. We believe that these initiatives should provide stability to the market, and while it is very difficult to call a market bottom, we believe that we are at least very near to one.

"Absolute Software develops software and provides services for tracking personal computers, primarily for theft recovery. Its Computrace software allows it to track a computer over the Internet, and is embedded in the firmware of laptops and PCs sold by major vendors such as Dell, HP, Lenovo, Fujitsu and Toshiba. Absolute’s fiscal 2008 fourth quarter results were very good, with sales contracts of $21.5-million, which grew by 32% over the previous year. Its corporate and institutional business was particularly strong, more than doubling relative to Q4/07. We believe the company can continue to achieve strong growth despite the current macro environment, as existing corporate and institutional customers further expand their deployments, and as recent product and distribution initiatives start to ramp up.

"Prometic is a biotech company based in Montreal that signed a $295-million licensing agreement for four proteins with Abraxis Biosciences. When including manufacturing revenues and royalties, we expect this transaction could increase to $600-million over the next eight years. We believe that this deal’s initial value is about 75¢ per share to Prometic. In the near term, we expect Prometic to announce further deals with large pharmaceutical companies, as the company has a robust drug/technology portfolio, with multiple product partnership opportunities.

"Timminco is a company that will benefit from strong volume growth and has the ability to license its technology as its proprietary process of upgrading metallurgical silicon to solar quality can be adapted by other manufacturers. Its production capacity is on track to reach 14,400 metric tonnes (mt) by mid-2009, and has signed contracts to deliver 16,000 mt in 2010, which means a further capacity expansion is likely. Its technology has been strongly endorsed with contracts and statements by customers including Q-Cells, which is the largest solar cell manufacturer in the world. The next catalyst is the commissioning of its 3,600 mt per year solar silicon upgrading line, which we expect by the end of 2008.

"We recently tendered our shares in Aurelian Resources, after it received a $1.2-billion friendly all-stock takeover from Kinross Gold Corp. The macro outlook for gold remains positive from both a supply/demand perspective and from the uncertainty in the U.S. economy."

Selected holdings:

Absolute Software Company
Aecon Group
ATS Automation Tooling Systems
Kinross Gold Corp.
Zenn Motor Company

One-year return: - 13.9%
Three-year return: 3.7%
(Through Aug 31, 2008)

Morningstar rating: Three star

All data provided by Morningstar unless otherwise noted
*Data provided by company

David Pett

Photo by Colin O’Connor for National Post

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