(Every week, Business Edge columnist Gyle Konotopetz profiles the top three picks of one of Canada’s top investment pros.)

FEATURED PRO: Gene Vollendorf is president and CEO of Savoy Capital Management (www.savoycapital.ca)

Savoy Capital is a Calgary-based investment firm focused on fundamental research in the Canadian market.

The company’s flagship fund is the Gladiator LP Fund, a long/short hedge fund that has generated a compound annual return of 22.5 per cent over the past two years. The Gladiator has a management expense ratio (MER) of 1.5 per cent plus performance fees of 20 per cent if the fund returns above six per cent in any given year.

Vollendorf’s Perspective: “Increased investor confidence and capital flows into equities have caused the overall market to move up. In Canada, the sharp appreciation of the Canadian dollar has exposed exporters to unanticipated risk and SARS has significantly impacted the economy, especially the leisure and travel industry.

“We believe that focus on valuation is important as a lot of stocks have moved up in this rally and do not have the projected earnings momentum to justify these price levels. The Canadian economic growth projections for 2003 are declining and matching prices to expectations will follow.”




FIRST STAR
* Enghouse Systems (ESL-TSX)
* Recent Price: $12.60.
* 52-Week Range: $8.75-$12.80.
* Snapshot: Enghouse is a software and services company providing spatial information management services to its customer base. Its strategy is to diversify its operation both within and beyond its current market sector through organic and acquisition growth.
* CEO: Stephen J. Sadler.
* Head Office: Markham, Ont.
* Vital Stats: Current Price/Earnings Ratio, 18.3; Revenue (last 12 mos), $29.9 million; Profit (last 12 mos), $6.4 million; Market Cap, $162.5 million; Shares Outstanding, 12.9 million.
* Vollendorf’s View: “Enghouse is a software acquisition story that has a proven, disciplined and motivated management team. The company recently completed a sizable acquisition that has more than tripled its annual revenue run rate and increased its
profitability more than 50 per cent year over year.
“The company has net income margins greater than 17 per cent. Its balance sheet is pristine with over $5.50 of cash/share, providing a war chest to complete further acquisitions. The market is just starting to gain an appreciation for the profitability and earnings momentum of this underfollowed story. The
stock should increase 26 per cent in the next six months.”
* Savoy’s Risk Rating: Low.
* Web Watch: www.enghouse.com



SECOND STAR
* Speedware Corporation (SPW-TSX)
* Recent Price: $2.43.
* 52-Week Range: $0.91-$2.50.
* Snapshot: Speedware provides applications development technologies, business intelligence software and wireless Internet services through a
distribution network spanning 35 countries.
* CEO: Jean-Pierre Theoret.
* Head Office: St. Laurent, Que.
* Vital Stats: Current Price/Earnings Ratio, 8.1; Revenue (last 12 mos), $13.1 million; Profit (last 12 mos), $3.9 million; Market Cap, $54.9 million; Shares Outstanding, 22.6 million.
* Vollendorf’s View: “The company’s most recent acquisition has exceeded expectations in terms of improving operating margins going forward. We continue to recommend this stock because it still has a very reasonable valuation and lots of earnings momentum. Applying a price/earnings ratio of 10 to 2003 earnings of 30 cents, which is justified in the
current market environment, this stock should be trading close to $3 by year end.”
* Savoy’s Risk Rating: Medium.
* Web Watch: www.speedware.com



THIRD STAR
* Tempest Energy Corp. (TMY.A-TSX)
* Recent Price: $5.20.
* 52-Week Range: $3.70-$5.90.
* Snapshot: Tempest is a junior oil and gas company with operations in two core areas of Alberta – the prolific Red Earth play and Chipman.
* CEO: A. Scott Dawson.
* Head Office: Calgary.
* Vital Stats: Current Price/Earnings Ratio, 22.6; Revenue (last 12 mos), $21.5 million; Profit (last 12 mos), $3.4 million; Current Price/Cash Flow Ratio, 4.4; 2003 Expected Production, 3,300 boe/day; Market Cap, $91 million; Shares Outstanding, 17.5 million.
* Vollendorf’s View: “Tempest has a proven management team, formerly from Tier One Energy Corp. This management team doesn’t get the respect it deserves but in time will command a premium for its execution. Although the company had a lacklustre drilling program the past winter, it is still expected to organically grow production by 65 per cent in 2003 (to 3,300 boe/day).The expected one-year return is 45 per cent.”
* Savoy’s Risk Rating: Medium.
* Web Watch: www.tempestenergy.com
* Vollendorf’s Edge Record: +39%. Best Pick: Cinram
(CRW-TSX) +78%. Worst Pick: Rockwater Capital (RCC-TSX) -23%.
* Disclosure: The featured stocks are held in the Gladiator LP Fund.