CANADA BREAD COMPANY, LTD. $61 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; SI Rating: Above average) is a leading supplier of fresh and frozen baked goods to supermarkets and restaurants. It also makes pastas and sauces. Its main brands include “Dempster’s”, “Tenderflake” and “Olivieri”.

Canada Bread’s revenue rose from $678 million in 2001 to $1.35 billion in 2005, mainly due to its $262.3 million acquisition of the U.S. and UK bakery operations of Maple Leaf Foods Inc. (see below). Maple Leaf now owns 87.5% of Canada Bread.

Earnings before restructuring costs jumped from $0.97 a share (total $36 million) in 2001 to $1.80 a share ($64 million) in 2002. Income fell to $1.61 a share ($63 million) in 2003, but grew to $2.62 a share ($99 million) in 2004, and to $3.07 a share ($111 million) in 2005.

Maple Leaf has steadily increased its ownership of Canada Bread in the past few years. This high level of control has hurt Canada Bread’s liquidity.

Rumors that Maple Leaf would bid for the rest of Canada Bread helped drive the stock to a recent peak of $66 in July 2006. However, the stock is still reasonably priced at 17.4 times its likely 2006 earnings of $3.50 a share. The $0.24 dividend yields 0.4%.

Canada Bread continues to do a good job responding to changing consumer tastes. It has improved the taste of its products while emphasizing healthier ingredients, such as whole grains instead of refined flour. Strong demand and effective marketing let the company charge premium prices for these products, which helps it cope with rising prices for fuel, grain and other costs.

Foreign operations now provide 20% of Canada Bread’s revenue, and it continues to expand internationally. It just paid $1.9 million for a UK bakery which should increase Canada Bread’s annual revenue by $40 million. More important, this acquisition broadens the company’s UK product line, which should help it expand sales elsewhere in Europe.

Canada Bread is a buy.