This is what value looks like

In the glittering spectacle that is Corporate Canada, the past few years have been especially spectacular for the big guys--spectacular buyouts, spectacular windfalls in resources and real estate, and, for some, spectacular reversals of fortune. Look at the behemoths at the top and bottom of our annual Top 1000 ranking, and many of these triumphs and disasters come to mind immediately.

But what of the smaller and less glamorous lights that don't (yet) post billions in annual profits or losses? They, too, have had to slug it out amid the often-brutal realities of the new global marketplace--intense low-wage competition from overseas, the soaring Canadian dollar, the crumbling U.S. economy and more. Unlike the behemoths, however, they don't have vast amounts of capital and manpower to fall back on. They have to be clever and nimble to prosper.

Many of these smaller outfits produce steady profits and share price appreciation, year after year. Despite soaring stock markets in recent years, most of these companies are still modestly priced, on the right side of the value investor's traditional price/earnings ratio threshold of 20. But if you comb through news archives, pretty much all you will find are brief summaries of their quarterly or yearly earnings. Their CEOs aren't household names either, even in the non-Bay Street locales in which they're headquartered. Quick! You folks in Guelph, Ontario! Who's Bill Hammond?

Well, he runs Hammond Power Solutions, the manufacturer his grandfather, Oliver Hammond, established in 1917. An early specialty was radios, but since 1927, Hammond has concentrated on making transformers. The company's profits have risen more than 700% over the past three years alone--much better, in percentage terms, than the Royal Bank, No. 1 in our Top 1000 ranking, or any of the other giants in the top 10 (see page 78). Yet even Bill Hammond's two teenaged kids aren't all that excited by the family business. "There's a, um, mild interest there," he says.

Apart from a handful of analysts who track their shares and a few savvy institutional money managers who've profited from them, many investors don't know these companies. Is that fair? No, but that's life. Sometimes, real performance gets no respect. Bill Hammond wouldn't mind a little more publicity, but he can also wait for investors to discover the value in his company. "We're throwing off enough cash that we don't need to go to market," he says.

A low profile may simply be the price that wallflower companies pay for working in humdrum businesses like transformers, excavation or fertilizer. But it's easy to find out about their stories--all you have to do is call and ask. Here is what we found out.

HAMMOND POWER SOLUTIONS TOP 1000 RANK 353 2007 REVENUE $162 MILLION PROFIT $12.4 MILLION THREE-YEAR SHARE

PRICE GAIN 844.4%

Like many Canadian manufacturing dynasties, the Hammond family of Guelph, Ontario, saw big trouble ahead in the early 1980s, as free trade with the United States loomed. "We had one choice: Either get bigger or sell," says chairman and CEO Bill Hammond, who joined the transformer manufacturer in 1978 after graduating from the University of Western Ontario. Unlike other dynasties, however, the Hammonds didn't panic. They hired a consulting firm to help plot the future. "I think it saved our ass, so to speak," says Hammond, 56, in a low, deliberate voice.

The Hammonds learned that too many Canadian manufacturers were concentrated on the protected domestic market, which meant their production runs were too short and their costs too high. In Hammond's case, 75% of its sales were still in Canada.

Looking south, there were also opportunities. Many of Hammond's U.S. competitors were, and still are, small, with just $10 million to $15 million in sales. So Hammond could grow by buying a few competitors, which it has done. The company now operates three plants in Canada, two in Mexico and one in the U.S.

Another key decision: Specialize in so-called dry transformers, which use air cooling, and eschew wet ones, which use oil and other liquids as coolant. The company also spun off Hammond Manufacturing, which makes enclosures for large electrical devices. Even the dry transformer business is hugely varied, however. Hammond's product line ranges from 50-volt-amp models that can fit in your hand to room-sized 34,000-kilovolt-amp versions used in power substations.

Of course, to get bigger, you also need more money. So, in 1987, Hammond went public. But the family has maintained just over 60% control of the company with 4-for-1 multiple voting shares.

Bill Hammond knows that institutional investors, in particular, don't like that share structure. But he's quick with the only convincing counter-argument: Sometimes it helps everyone to have a strong family proprietor in charge. "What's good for the outside shareholder is good for myself," he says. And it's hard to argue with results. The share price has climbed from less than $1 four years ago to around $12 recently--still an appealingly low 10 times forecast earnings for 2008.

ALGOMA CENTRAL TOP 1000 RANK 199 2007 REVENUE $585.7 MILLION PROFIT $52.4 MILLION THREE-YEAR SHARE PRICE GAIN 72.8%

Value investors will often tell you to ignore quarterly results and hang on for the long term. It's hard to find a company that supports that tenet (or cliché) as well as Algoma Central, a century-old shipping company based in St. Catharines, Ontario. It's also hard to buy its shares, because the public float on any given trading day is small. Bushy-browed Toronto magnate Henry (Hal) Jackman's family has owned a majority since 1959--their current holding is 57%. Nova Scotia's Jodrey clan holds another 13%. Why would they and other long-term shareholders sell shares that have climbed almost without a bump from about $40 five years ago to more than $140 lately?

Yet Algoma's long history might also give you a misleading impression of where it's headed. The company was founded as a railway in 1899 by financier Francis Hector Clergue to serve his mining, forestry and steel interests in and around Sault Ste. Marie, Ontario. It soon added Great Lakes shipping to its business. But the railway was sold in 1995, and "Great Lakes shipping just has to be considered a mature business," says Greg Wight, the 28-year company veteran who took over as CEO in May. Algoma's 19 lake ships carry grain from Thunder Bay and Duluth through the St. Lawrence Seaway for export; haul iron ore from Quebec back west; and transport coal and so-called aggregate (concrete and the like) for construction between various points. Mature they may be, but, overall, domestic operations generated about $400 million in revenue last year.

Given the limits to growth in that business, Algoma has also pushed into ocean shipping over the past decade. "It gives us diversification and growth," says Wight. The firm owns two carriers called self-unloaders (with on-board conveyors to handle their own cargo) and a 50% interest in five others. Those ships transport gypsum, wallboard, aggregates and coal up and down the east and west coasts of North and South America.

There's also a small, but growing, real estate portfolio. Like the Canadian Pacific and Canadian National railways, Algoma Central was granted a lot of land in its early years. "CP and CN got lands in Toronto and Montreal, and we got them in Sault Ste. Marie," says Wight. Algoma built a mall, offices and a hotel on the Soo's waterfront years ago; it is now focusing on Southwestern Ontario.

Wight is in no rush, however. Unlike the hard-driving institutions that now call the shots at many companies, the Jackmans and the Jodreys don't "live and die by the share price that day," he says.

NORTH WEST CO. FUND TOP 1000 RANK 184 2007 REVENUE $1.1 BILLION PROFIT $63 MILLION THREE-YEAR SHARE PRICE GAIN 81.6%

What do frigid Iqaluit and tropical American Samoa have in common? Plenty, if you're an expansion-minded retailer like North West CEO Edward S. Kennedy, whose company serves both markets. In these remote locales, there may be only a single sizable store in town--one that has to transport in all of its merchandise from thousands of miles away, and provide services like cheque cashing and fast food on top of groceries and other everyday essentials. Customers are largely middle- and low-income, and must be served in their local language. "You have to be culturally sensitive," says Kennedy.

Since the early 1990s, Winnipeg-based North West has pushed far beyond Canada's North by acquiring other small retail chains in Alaska, Western Canada, the Caribbean, Hawaii and, yes, Samoa. Yet many Canadians only remember North West's name from history books. Formed in 1779, the swashbuckling Nor'Westers were absorbed into the Hudson's Bay Co. in 1821. Their remote trading posts became the Bay's Northern Stores division. In 1987, the division was spun off to investors and a group of employees, who resurrected the original name.

Kennedy, 48, has his roots in the North as well. He was born in The Pas, Manitoba, 620 kilometres northwest of Winnipeg. He earned a business degree at the University of Western Ontario and a law degree at York University's Osgoode Hall. He joined North West as director of corporate development in 1989. Executives were charged up about the reconstituted company's prospects, he says, because they felt that Northern Stores had been neglected and "cash cowed" by the Bay.

But growth opportunities in the North are limited. In 1992, North West bought what is now its AC Value Center division, the largest retailer in rural Alaska. Kennedy was named CEO of North West in 1997. He and his team figured their "keep it small, keep it local" approach would work in underserved neighbourhoods in southern Canadian cities as well. So, in 2002, they bought master franchise rights for Western Canada from discounter Giant Tiger (the current complement is 27 stores). And last year, North West went even further south, buying the Cost-U-Less chain, which operates a dozen discount stores on islands in the South Pacific and the Caribbean.

Investors apparently have had some concerns about the expansion, however. The price of North West units soared from less than $7 in 2003 to $22 last year, but has stalled at about $18 lately. That's an appealingly modest 12 times forecast earnings per share for North West's current fiscal year.

RITCHIE BROS. AUCTIONEERS TOP 1000 RANK 166

2007 REVENUE $316.9 MILLION (U.S.)

PROFIT $76.0 MILLION (U.S.)

THREE-YEAR SHARE PRICE GAIN 77.7%

In theory, you could try to sell your used 30-log transport trailer on eBay, but a company headquartered in Richmond, B.C., whose employees wear orange baseball caps and matching golf shirts, would probably fetch you a better price. They run Ritchie Bros., the world's largest industrial auctioneer. The company has more than 110 offices around the world, including in Romania, Dubai and Singapore, as well as 38 auction yards selling to customers in sectors such as oil and gas, mining, forestry and construction. Those yards, which each hold four to six auctions a year, are key to Ritchie Bros., says CEO Peter Blake, because buyers are the same everywhere: "guys with big forearms who like to jump on the equipment and turn the key."

Blake, now 46, succeeded co-founder Dave Ritchie as CEO in 2004. Ritchie launched the business in Kelowna in 1958, along with his older brothers Ken and John. The founding was accidental: The siblings' furniture and sporting goods store needed $2,000 to repay a bank loan; a friend suggested they hold an auction of surplus stock to raise the dough. The sale went so well that the Ritchies decided to get into the business. In 1963, the brothers shifted their focus to auctioning industrial equipment. By the time Ken and John left the business in the 1970s, the firm had expanded into the U.S. It first sold more than $1 billion worth of equipment in a year in 1985. From gross sales, Ritchie takes a commission that averages about 10%.

Blake, a chartered accountant, first visited Ritchie Bros. in the early 1980s as an auditor with KPMG. He loved the down-home feel. "There was a cribbage board, and I played with Dave," he says. He joined the company as controller in 1991.

The push overseas began in the 1990s, when managers figured that their expertise could work anywhere. Online auctions were added in 2002. A crucial part of the method is strictly unreserved auctions: The auctioneer has to accept the highest bid, there are no sealed bids, and sellers cannot bid on their own equipment if they think the price is too low.

Dave Ritchie stepped down as company chairman in 2006 and sold about one million shares last year. The stock is now widely held. But after doubling in price, to $26, over the past three years, is the stock getting ahead of itself?

According to Blake's math, maybe not. Ritchie Bros. now sells more than $3 billion (U.S.) worth of equipment a year, yet he still thinks there is plenty of room for growth. "We're the biggest in the world, and we're larger than our next 50 competitors combined," he says. Worldwide sales of used industrial equipment totalled about $100 billion last year. "I keep looking at the other 97 [billion]" he says.

AGRIUM INC. TOP 1000 RANK 55 2007 REVENUE $5.5 BILLION (U.S.)

PROFIT $441 MILLION (U.S.) THREE-YEAR SHARE PRICE GAIN 268.4%

Just how sexy is the fertilizer sector these days? For retail investors, the headline "Is Agrium the new Potash?" is the financial equivalent of a People magazine Jen-and-John versus Brad-and-Angelina celebrity-couple smackdown. Potash, of course, refers to both the pinkish-looking crop nutrient and to Potash Corp. of Saskatchewan, which has seen its share price soar from about $70 to around $200 over the past year. Like Jen (Aniston) and John (Mayer), Calgary-based Agrium is also on a roll--its share price has soared from $40 to around $85 lately, which is still just 10 times its forecast earnings for the current year.

The two companies are actually quite different, however. True, Agrium mined and processed about 1.7 million tonnes of potash in Saskatchewan last year, roughly a fifth of what PotashCorp. produces. But potash only accounted for 15% of Agrium's 2007 earnings. The biggest slice--51%--came from wholesaling nitrogen. Another 21% was contributed by Agrium's huge stateside retail operations, which sell fertilizer, chemicals and seeds to farmers, via 87 Western Farm Service outlets in the West, and 326 Crop Production Services branches in the Midwestern corn belt and the East.

Soaring commodity and food prices are fuelling much of the current investor passion for agricultural plays. But Agrium CEO Mike Wilson, a 57-year-old chemical engineer who joined the company in 2000, says improved fundamentals have also impressed the Street. Sales in 2002 were $2 billion. Since Wilson assumed the top job in 2003, they've climbed to more than $5 billion, and operating earnings are up from about $200 million to almost $900 million. That profitability is even more remarkable given that Agrium has made seven major acquisitions, including Colorado-based UAP Holdings Corp. last December for $2.7 billion (U.S.). That deal made Agrium the biggest retailer in its category in the U.S. The company is also pushing hard into South America, Asia and Europe.

When will the worldwide agricultural upswing end? Probably not until 2012 or beyond, says Wilson. "We don't believe people are going to cut back on eating," he says. "Certainly not enough to offset increased world growth and the GDP changes." And it takes a long time to boost farm output by either cultivating more land or increasing crop yields. Either way, he says, it will mean more demand for "our seed, our chemicals and our nutrients."

BADGER INCOME FUND TOP 1000 RANK 319 2007 REVENUE $117.7 MILLION PROFIT $16.8 MILLION THREE-YEAR SHARE PRICE GAIN 46.2%

If your mother warned you that you'd become a ditch digger if you didn't study harder, she probably hadn't analyzed the excavation sector closely enough. Based in Calgary, Badger bills itself as North America's largest provider of "non-destructive excavating and slot trenching services." Badger uses large hydrovac machines to dig trenches, primarily for oil and gas producers and utilities. The machines use high-pressure water jets to liquefy soil (even if it's frozen), and then suck up the resulting mix into a storage tank. That's faster than hand digging and, around cables and pipelines, safer than letting rip with a backhoe.

Badger operates a fleet of more than 350 trucks. Most of them roam Western Canada, but more than 130 are now stateside, where there are just a few small competitors using the same technology. Like its market position, the company's financials are appealing. Badger has doubled in size over the past five years, yet has relatively low debt. It's generating most of its growth through its own cash flow.

Badger's unit price has soared from less than $2 five years ago to more than $23 recently. But company executives aren't eager to brag. Chief financial officer Greg Kelly declined to be interviewed, saying the company "doesn't normally do media," apart from the odd technically focused article in trade journals. So, we didn't have a chance to ask them if their mothers are proud of what they've accomplished.

BIRD CONSTRUCTION INCOME FUND TOP 1000 RANK 235 2007 REVENUE $756.9 MILLION

PROFIT $33.4 MILLION

THREE-YEAR SHARE PRICE GAIN 749.6%

You see the words "bubble" and even "massacre" a lot these days in news stories warning about a downturn in real estate and construction. But you'd never know there were any slumps at all if you only looked at Toronto-based Bird Construction's annual reports: 20 straight years of profits, including 51 consecutive quarters stretching back to 1995. It's even more astonishing when you consider how battered the company was back in 1988, the year Paul Charette was named president.

At the time, the Bird family was considering an offer of just $1 million for the business H.J. Bird founded in Moose Jaw in the 1920s. Instead, the family chose to let go of the top job and let Charette have a go. Charette, who'd joined Bird in 1976 as a junior project co-ordinator, started to generate cash flow the old-fashioned way: by not spending the stuff. "I believe that every dollar you're not spending goes straight to the bottom line," he says. That's fitting for a guy who "grew up poor" in Winnipeg and still thanks his older sister for advising him to spend $200 on a course in civil technology after high school (Charette had been thinking about using the money to buy a car).

All of Bird's numbers have gone straight up ever since. A Bird share bought for $10 in 1988 would now be trust units worth more than $2,300. The company's total stock market value is roughly $550 million. Yet, at about $42 apiece of late, those units are still trading at just 10 times this year's forecast earnings.

Managing cash and risk have been Charette's touchstones. It also helps to have a few grey-hairs around the place, folks who have brought many projects in on time and on budget over the years. One Bird employee has been with the company 48 years.

That experience is particularly valuable in overheated markets like Alberta, where Bird is close to completing a $190-million wastewater treatment plant on schedule. About half of Bird's revenues come from Western Canada, but its operations stretch from the Atlantic, where it recently bought Rideau Construction, to the Pacific, where it is building the University of British Columbia's Thunderbird Winter Sports Centre for the 2010 Winter Olympics.

How long can Bird keep growing? Charette, who is chairman of the Canadian Construction Association this year, says there are $100 billion worth of projects slated for Alberta's oil sands alone over the next several years. Meanwhile, governments across the country need to spend at least that much to renew decaying infrastructure. So he doesn't see retirement in his immediate future. After all, Bird's horizons are expanding. "I can see further into the future than I ever have before."

GLACIER VENTURES INTERNATIONAL CORP. TOP 1000 RANK 244 2007 REVENUE $219.8 MILLION PROFIT $30.6 MILLION

THREE-YEAR SHARE PRICE GAIN 50.6%

The face of small-town newspaper publishing in Western Canada changed radically in early 2006. Glacier Ventures, a small trade publisher chaired by media-shy Vancouver entrepreneur Sam Grippo, scooped up more than 70 papers and 40 trade magazines--remnants of the Hollinger International empire amassed by Conrad Black. In a series of transactions, Glacier paid nearly $180 million for the titles , which had been on the block for about two years. Media giants like Rogers Communications and Transcontinental cried foul, saying there should have been an auction. Glacier, a former bottled-water producer that Grippo bought as a shell company in 1998, made the headlines for a couple of months, then disappeared.

The company is in no hurry to become news again itself. CEO Jonathon Kennedy, a Harvard Business School MBA and one of a team of executives and partners around Grippo, says more mainstream media coverage would be okay, but Glacier is happy with its growing base of institutional investors and enhanced coverage by investment analysts. "Awareness has been building, but can certainly stand to be increased," he says.

The papers include The Record in Sherbrooke, Quebec, where Conrad Black began his newspapering career. Among the trade, farm and other specialty publications in Glacier's roster are the Western Producer and the Daily Oil Bulletin. Within Hollinger International, many papers were run by Black's notoriously tight-fisted number two, David Radler. Kennedy, 45, a former Southam and Pacific Press executive, says cost control is obviously still a priority, "but I also think that quality is a big deal."

So is the Internet. Kennedy argues that being focused on small communities and specific industries might actually give Glacier superior online growth prospects. The media goliaths slugging it out in major cities compete with hundreds of other information providers. "Our small local newspapers offer content that is generally not offered by others online," he says.

Apart from some big swings in late 2005 and in 2006, Glacier's share price has climbed remarkably steadily over the past five years, from just over $1 in 2003, to around $4 recently. That's still just 12 times forecast earnings for the current year. One investor concern weighing down the price is Glacier's $123 million in long-term debt, a legacy of the Hollinger deals. But Kennedy says that's a modest 2.5 times Glacier's operating earnings, and the company certainly hasn't stopped growing yet. "It's very manageable and low compared to many other media companies, and allows room for further acquisitions where opportunities arise."

GLENTEL INC. TOP 1000 RANK 370

2007 REVENUE $222.2 MILLION

PROFIT $10.6 MILLION THREE-YEAR SHARE PRICE GAIN 75.5%

Remember when cellphones were as big as a brick and were installed in cars? Back in the mid-1980s, the Skidmore family of Burnaby, B.C., launched a national chain to sell and service newfangled Cantel cellphones. It was a logical fit with Trans Canada Glass (now TCG International), the family's replacement auto glass outfit, founded by Arthur Skidmore and his brother Herbert in 1946.

In 1989, TCG purchased a majority stake in Glenayre Electronics, a wireless product manufacturer that also owned communications networks. Three years later, the family sold the manufacturing operations and renamed the remaining mobile communications interests Glentel Inc. It now has two segments--the business division designs and sells wireless networks for government and corporate clients, the other retails cellphones. The company opened its first WirelessWave kiosk in Vancouver's Metrotown shopping centre in 1997.

Glentel was a train wreck at first--the share price declined from more than $4 to less than 50 cents in late 1999. Just before the tech bubble burst in 2000, the shares shot up past $13, but then plunged below $1 just as fast. "The thing vaporized," says CEO Tom Skidmore, 58. The sectoral hit was bad enough, but the company had also invested in some fibre-optic plays.

Since then, Glentel has steadily expanded its retail network. The company now owns and operates more than 200 outlets in malls across most of Canada under the banners WirelessWave, the Telephone Booth/La Cabine Téléphonique and Wireless etc. Industry analysts and journalists often fixate on huge manufacturers (Nokia, Motorola) and big service providers (Bell, Rogers). In between, there are millions of confused retail customers. "There are 100 features on a phone, and they operate five of them," says Skidmore. And the cellphone providers' service plans are Byzantine. This is where Glentel comes in. "We sell knowledge," says Skidmore.

The business division's voice and data systems, meanwhile, are targeted at users such as oil and gas workers in the field, and even Alaskan fishermen.

The combination of retail and business units has been lucrative for Glentel. Its shares have climbed back to $10 over the past five years, yet are trading at less than 10 times analysts' forecast earnings for this year. Family interests still control just over 50% of the shares, however, and Skidmore figures he isn't done yet. "Can we go outside Canada? Absolutely."

FORTIS INC. TOP 1000 RANK 98 2007 REVENUE $2.7 BILLION

PROFIT $199 MILLION THREE-YEAR SHARE PRICE GAIN 45.1%

One great thing about owning an electricity monopoly is that it generates lots of cash flow in good times and bad. One bad thing about owning an electricity monopoly is that you need regulatory approval for practically everything you want to do. It's also hard to expand in your home base, because you already own 100% of the market.

That was the conundrum that executives at Newfoundland Light & Power Co. faced in the 1980s. Their solution: Use all that cash to diversify, both geographically and into other, non-regulated businesses. They had a model, of sorts, to look at: BCE Inc., the gangly holding company A. Jean de Grandpré started building out of Bell Canada in the 1980s. "We had the opportunity to learn from the misfortunes of others," says Stan Marshall, who joined Newfoundland Power in 1979. Marshall helped lead the utility's conversion into Fortis Inc. in 1987, and has been CEO since 1996.

Among Fortis's early acquisitions in the 1990s were hotels, and it now owns and operates about 20 of them under Holiday Inn and other banners across Canada. The really big deals were still to come, starting with the purchase of electricity distributors in Alberta and B.C. in 2003, up to last year's $3.7-billion acquisition of Terasen Gas, which serves about 95% of B.C.'s natural gas customers. "We're very aggressive in acquisitions, but we often look at companies for years before doing them," says Marshall.

Over the years, Fortis has also added electrical utilities in Prince Edward Island, the Cayman Islands, Belize and New York state. Yet Marshall says he has no plans to move Fortis's headquarters from St. John's, where there are fewer than 20 employees. He loves his home province, even though he's rarely there these days.

He was born in the small fishing village of Freshwater Carbonear. ("There are about four Freshwaters in Newfoundland," he says, "so you have to specify which one.") He got his undergraduate degree in engineering at the University of Waterloo. He added a law degree from Dalhousie University in 1972.

Marshall tries to visit each of Fortis's operations once every quarter. He reckons that from October to December last year, he was home just six days. He's married to former provincial cabinet minister Elizabeth Marshall, and the couple have twin daughters and a son, all in their early 20s. He says Elizabeth joins him on the road whenever possible, "so we won't forget what we look like."

At age 58, after 29 years with the company, hasn't Marshall accomplished enough? "One of the things I've failed at is retiring," he says. Investors are apparently happy with that shortcoming--Fortis's share price has doubled from about $14 to $28 over the past five years.