PAE, Current Price $0.5, Price Target $2.

You may not have heard of Crash, before it won Oscar by beating the favourite Brokeback Mountain. It is produced by a small Vancouver company, Lionsgate (Stock Ticker LGF), who also made the top box office movies Saw and Saw II. The philosophy behind those movies is to use low budget and get high box office. This business model is much more efficient than big Hollywood studios' big spending habits. Currently LGF is traded at $9.5 with market cap at $988M. If you want to invest in the next Oscar winner, you should consider Peace Arch Entertainment, (Stock Ticker PAE). PAE started from Vancouver as well then moved to Toronto. It did not do very well in the past few years, but there are big changes in the company unnoticed by most investors.

On August 1st, 2005, PAE sold $2 million shares to entertainment industry veterans - Jeff Sagansky, Kerry McCluggage and Drew Craig http://www.peacearch.com/news/newsItem.cfm?cms_news_id=6

10 days later, 2 films by PAE were nominated to Guild of Canada Awards and two Emmy catagories http://www.peacearch.com/news/newsItem.cfm?cms_news_id=4

On 0ct 28th 2005, one of PAE's largest debtor converted $8.8M debt into 2.9 million shares at price of $3 a share.

Later in 2005, PAE added quite a few films.

On Jan 09th, 2006, Jeff Sagansky, Kerry McCluggage and Drew Craig bought additional 1.5 million shares at $0.5, 20% more than its market price $0.4 at that time.

2 weeks later, PAE acquired Leading Canadian Home Entertainment Studio kaBOOM.

PAE's main focus is in low budget and controversial firms, so once they are out, people can spread the news without paying advertising cost. What is going inside PAE is that the industry insiders decided to put their own money into this company at higher than market price, then use their connections to promote PAE's firms by putting them on the list of nominations of big awards. They use their investment to buy assets and distribution channels to complete the whole cycle.

Financially speaking, PAE is only traded at Price/Sales 1.29, Price/Book 1.27. So there are good values. With investment commitment from its existing investors, there is no need to worry about the debt it current has. The main reason that the stock is still traded at half dollar now is because in the past few quarters, income statement are not very impressive. However that is due to the nature how film revenue is accounted. For small studios like PAE, when they are busy producing firms, the current quarter will look much weaker than the real picture. Comparing to LGF's Price/Book at 9.4, with just one single award or hit, PAE's stock price could be go off the roof. You can see similar sparks in PAE trading history. http://finance.yahoo.com/q/bc?s=PAE&t=1y After those run-ups, the volume is much greater than average even after price correction.

Low Budget + Awards + Distribution Channel = High Profit.
Industry Insider Buying = Confidence
Small size + Good value = High Potential for Investors.

With its current trading activities, it is a good entry point at this level. We have a conservative price target of $2 on PAE.

GrowingValue.com
Voicemail: 603-316-2556
Mar 16, 2006
Copyright 2006

Update on March 31st:
Please check out the 3 new films currently in post-production:
Delirious http://www.peacearch.com/_bin/film/peaceArch_films/currentFilms/delirious.cfm with Trailer on http://www.peacearch.com/includes/fileGet.cfm?cms_document_id=21
Chapter 27 http://www.peacearch.com/_bin/film/peaceArch_films/currentFilms/chapter27.cfm with big name stars Jared Leto and Lindsay Lohan.
Guantamero http://www.peacearch.com/_bin/film/peaceArch_films/currentFilms/guantamero.cfm with Trailer on http://www.peacearch.com/includes/fileGet.cfm?cms_document_id=23

GrowingValue.com
Voicemail: 603-316-2556
Mar 31, 2006
Copyright 2006

Update on May 2nd
None-stop good news just keeps coming. On April 5th, PAE converted debt from Comerica at $5 per share. In other words, Institutes like Comerica think PAE worth $5. Two weeks later on April 20th, Showtimes accepts PAE's movie "The Tudors". One week later, PAE bought a profitable library of 500 films. The price of the deal is less than the receivables. This is a steal!
May 1st Conference Call is at http://65.197.1.5/cgi-bin/confCast?CID=828062&Submit=Go&PWD=&a=1
Summary of the CC:

John Flock optimistic at the direction the company is going

Film library is cash positive, net basis-accretive

Kaboom in his words is going "gang busters" in the top and bottom line. The division is the number one family label in Canada and they hope to make a push into the U.S.

Looking for other libraries because they now have the infrastructure to distribute them

PAE will produce 4-6 TV movies a year, 6 Peace Arch films and 10-12 Archetype films a year

Chapter 27 will be done at end of Summer. After that it is up to domestic distributor and their program needs

say they can finance library with bank loans due to its revenue and receivables.

Lifetime Network has been very aggressive in buying TV movies and Pae wants to be their top supplier

they participate in the gross rather than royaly in the DVD's

with the 500 title library they want to take advantage of foreign territories which is their expertise.

Canadian tax subsidies and credits actually pay for a a sizeable portion of production. The rest is paid by selling foreign rights. North America is left to capitalize on.

Flock says that film libraries are the way to go in this industry at the moment. It is easier to sell 10-12 films then it is to sell 2 films. Distributors need content to fill their programming needs and this is what PAE will deliver.