Once Again, Small is Beautiful - Phil Speller

For many years, we have bridled at the street’s inevitable bulling of the conventional big blue-chips in the advanced stages of bull markets, when they no longer provide the relative security they traditionally offer the average investor.

While the Nortel Networks fiasco is only the most recent example of the price to be paid for this nonsense, equally misleading is the failure to point out that, in such markets, the best values often exist in small, overlooked equities where managements are competent, the product or property package has unique attributes, and the upside potential far exceeds the downside risk.

A classic example is our August recommendation of Key Capital (KYC-CDNX), then $0.65, which subsequently got ahead of itself, trading up to $4.95 as momentum players found a new game in town. More recently, irresponsible chatroom chatter, reinforced by normal profit taking in a very skittish market, has again put the stock in ‘accumulation’ mode.

The company’s first commercial option agreement, with Summit Consultants for the territory of Taiwan, is expected to be finalized shortly, with the successful retrofit of the small, ultra-high-frequency, switch-mode charger that dominates the local market for motorbikes, scooters, wheelchairs, etc.

With a market cap of only $33 million, KYC continues to represent an exceptional entry into the electric-vehicle market.

A new name that also fits the above description, and with which we are now sufficiently comfortable to endorse as an intriguing speculation, is Capital Alliance Group (CPT-CDNX, $0.90, 604-871-9909, www.stockexchangeglobal.com ), selling near its 52-week low and down dramatically from its $4.26 high.

Under the innovative leadership of CEO Toby Chu, Capital Alliance’s business is conducted primarily through two operating subsidiaries: SE Global Equities and Canadian Institute of Business and Technology, both based in Hong Kong.

Local sponsorship is impressive, with two of the leading financial firms co-sponsoring the listing of SE Global shares on the Hong Kong Stock Exchange, expected in first-quarter 2001.

Alliances

Designed to take advantage of the explosion in online trading and the difficulty and cost incurred in most countries for investors who wish to invest outside their local markets, SE Global is in the process of developing an Internet-based, virtual international financial centre, linking investors, financial institutions and brokerage firms in both emerging and mature markets outside North America.

To date, alliances have been formed with a network of nearly 20 brokerage firms operating on 17 exchanges in 14 countries, including China, Hong Kong, India, the Philippines, Singapore and Portugal.

While the principal target market undoubtedly is the millions of Chinese expatriates worldwide who show a keen desire to trade with the motherland whenever possible, a similar sentiment exists with nationals anywhere, whether travelling executives, professional/amateur traders, overseas immigrants, etc. By effectively being a facilitator/service provider, rather than a securities dealer, SEG takes advantage of the existing brokerage infrastructure, thereby achieving low setup costs and eliminating much of the back-office expense normally inherent in the brokerage business.

At the same time, it permits rapid market entry and low-cost expansion, with compliance issues the local brokers’ responsibility, not SEG’s.

As an important and growing factor in the promotion of Western business education and training in the Asia-Pacific region, CIBT established the CIBT School of Business in 1995 as a joint undertaking with Beijing Polytechnic University.

CIBT’s mission is to establish a network of academic and career development training facilities throughout Asia, using both traditional classroom methods and Internet delivery.

Strategic partnerships developed with City University (CU) of Renton, Wash., and International Business Schools of Toronto enable CIBT to accommodate working adults seeking further career and academic training, as well as to offer advanced degree programs.

CIBT’s revenues are projected at $3.6 million for the fiscal year ended January 31, 2001, up 60 per cent from the previous year. Following nominal losses in the previous three years, a $360,000 profit is forecast for 2001.

CPT is that happy combination of virtually no effective downside risk and open-ended potential. Tuck away a few shares for the kids’ education, and some for yourself.