November 1998 Newsletter - Page 2




Vimpel-Communications-phone# 212- 815-2372-The company is a provider of cellular telecommunications services in Russia, including the City of Moscow and the Moscow region.

VimpelCom is the largest provider of cellular telecommunications in Russia, marketing its services under the brand name "Bee Line." The VimpeICom Group operates the only Digital-AMPS cellular network and the first Russian PCS network, using GSM technology, in the Moscow License Area, which includes the City of Moscow and the Moscow Region. The VimpelCom Group holds various GSM-1800 and AMPS/D-AMPS-licenses covering a total population of approximately 100 million (68% of Russia's population).

For the six months ending June 30th sales equaled $177 million (US dollars) and income/share equaled $1.17 - based upon 19.2 million shares (actually 25 million fully diluted). The third quarter numbers could be terrible since the devaluation. The book value at the end of the second quarter was around $8.72 and had $48 million in cash. This is going to change! The 52-week range $59-$4.25.

VIP's IPO a couple of years ago was at around $26.00. Shares are listed on the NYSE. VIP uses a "big" 5 accounting firm. Shares outstanding: 25,700,000 million. Soros & Fidelity own stakes in VIP.

Hit by the crisis, but less so than others. Russia's financial crisis is likely to have a significant impact on VimpelCom, negatively affecting its short-term performance as well as its growth prospects: 3Q98 results are likely to be disastrous as the company writes off its short-term investments and realizes massive foreign exchange losses. Fourth quarter mostly will be ugly, as well. In the short term, VimpelCom will probably see a contraction of its subscriber base and sharp decline in usage rates. At the same time, relative to other Russian telecoms, the company is likely to be less affected by the financial turmoil. Its dollar earnings will not be eroded by the ruble devaluation. It does not have massive short-term debts. It is not subject to tariff control and does not bear a risk of hard currency expropriation.

Despite a temporary setback, the mobile industry in Russia is likely to return to growth in the medium term. With a sensibly structured debt, a relatively price-insensitive core subscriber base and a virtually complete D-AMPS network, VimpelCom is poised to survive the crisis.


(OCT. 29, 1998)

The company is still getting new subscribers, with about 1,000 new users per week. It is also losing customers, with a net loss of 4,500 users in September. October is also expected to be negative, but not as bad as September. November may be negative, but only just. This is on top of a subscriber base of 135,400 as of 30 June 1998. Next year should see net growth in subscriber numbers.

In addition there has been no fall off in weekly traffic usage. This means that the customers that have been lost are not the heavy-traffic customers who have been generating such good results for the company. The company is hopeful that the introduction of a prepaid card system will enable it to reach out to a less well-heeled customer base, or enable those who cannot afford the full service to stay as customers.

The company sees the acquisition of GSM-900 licenses as good news, because it will be able to capture roaming traffic in Moscow, which is high margin, and will be able to boost coverage in the Moscow region and the Central region at low cost. There is some political risk attached to the allocation of 900 MHz spectrum, as this is scarce, but the company feels that it should be able to maintain its presence.

On the basis of fundamentals, VimpelCom is grossly undervalued compared with other European operators. Given its high share liquidity, business transparency, strong fundamentals and quality of management, we believe that VIP is one of the best call "options" on Russia.

The "news" in Russia has been terrible and every listed and unlisted security there has suffered by dropping 80% - 90% off recent highs. The slightest positive disseminated from the Kremlin could cause rapid share appreciation. Despite a negative short-term outlook, we truly believe that VIP is grossly undervalued and that the stock has significant upside potential, while accepting that this scenario may not be realized until investors return to Russia. We rate VIP a strong buy for risk tolerant accounts.

We initially recommended VIP at $5.75 via e-mail on September 23, 1998. We intend to monitor VIP for percentage gain performance.

Broker contact: Greg Nelson at 800-269-9460.

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Homeland Holding Corp. HMLD

The company operates a chain of supermarkets in OK, southern KS and the Texas Panhandle region. ( Phone: 405-879-6600) The company operates 69 stores.

Turnaround: 4.8 million shares outstanding; SOROS FUND MANAGEMENT owns 630,815 shares; FRANKLIN RESOURCES owns 405,662 shares; MANAGEMENT- 141,855 shares; Book value-June 30th-$7.76; cash-$5.8 million; 52-week range-$3-$9.00; 6-month sales-$244,912,000.00 with .27 net income/share before AMORTIZATION OF EXCESS REORGANIZATION VALUE! When you include this noncash item the net income turns into a loss of $1 .07/share!

Within the latest 10Q -Management Discussion ending June 30th:

The company is amortizing its excess reorganization value of $45 million over a three-year period, and such amortization has affected earnings significantly. If the company excluded such amortization of excess reorganization value for the 12 and 24 week ended June 30th 98, the company would record net income per share of .09 and .27, respectively. This write-off will affect earnings for the next 5 fiscal quarter.

The company will show sales of around $450-$475 million for the year and earnings before the NONCASH item of .50/share (this is our guess, but the six months prior indicates something! When we publish our next letter we will zero in on more finite numbers.

Anyway that you digest this situation indicates that the downside is limited, while the upside potential looks very promising. If HMLD earns .50 before the noncash item it currently trades at 7X est 98 numbers! It currently trades at only 40% or so below stated book and .035 of sales. The supermarket arena has been a tasty takeover segment and HMLD may get eaten! G. SOROS is a very smart investor and may see a free meal!

October 98 Release

For the first 36 weeks of 1998, net sales were $363,041,000 compared with $351,249,000 for the first 36 weeks of 1997. EBITDA was $14,858,000, up from $14,450,000. Net income, excluding amortization of excess reorganization value, was $970,000, or $0.20 per diluted share, for the first three quarters of 1998 and $1,835,000, or $0.39 per diluted share, for the same prior-year period.


"The third quarter's financial results were consistent with our overall expectations, as we continued to stabilize and strengthen Homeland's existing base of stores in operation," remarked Mr. Clark. "We were especially pleased with the significant increase in EBITDA, which, due mainly to an improved gross margin for the quarter, rose to 3.6% of net sales from 2.9% for the third quarter last year. We achieved this improvement in spite of a decline in same-store sales of 1.4%, which resulted primarily from greater competitive promotional spending and new competitive store openings.

"We remain committed to building unit volume in our existing store base. Our strategy to achieve this goal includes the continued promotion of the Company's Frequent Shopper card program, increased direct marketing efforts, ongoing programs to remodel and enhance our stores and improved in-store execution. In a difficult operating environment, we believe we have made progress in each of these efforts thus far during 1998. In addition, with the third quarter hiring of John Rocker as Vice President of Operations and Wayne Peterson as Chief Financial Officer, we now have the management team in place to implement our strategies more effectively."

Note: Wayne Peterson came from Buttrey Foods - a recent takeover candidate:

As mentioned earlier in this piece, we anticipated positive earnings for the third quarter, minus, of course, the reorganization cost. This didn't happen. We had thought that $.50 for the year was doable. It looks like $.30 would be a better number. We still rate HMLD a strong buy regardless. It trades heavily under book, most likely could be a takeover candidate and most importantly, the earnings picture will become clearer as time passes. We see little to no downside risk at current levels. This situation is under-followed, under-owned, undervalued and under most radar screens. If 99 turns out to be the year of the micros, HMLD should be a player. Even if we enter into a recession, people still must eat! At current levels, HMDL looks like a tasty treat.

Broker Contact: Greg Nelson at 800-269-9460.

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