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When, in 1991, the Soviet empire collapsed, Cuba lost its sugar daddy. Soon after, in the midst of a devastating depression, Fidel Castro, of necessity, opened the door a little to foreign investors and foreign tourists.  And thereby hangs a tale…and an attractive investment opportunity.

Five years ago, there were few cars on the road, few restaurants, and certainly no construction. Today, Havana is on the edge of a boom. And nowhere is that more noticeable than in the tourist industry. There are several good hotels and restaurants serving tourists. Visitor traffic is booming with frequent flights by British Airways and Air France. Over 60 major airlines now arrive at Havana's new $100 million airport. Tourists are flocking from Spain, Germany, Mexico, Canada - indeed everywhere except the United States. 

No turning back
The place has changed, and, despite political repression from Castro, it's not turning back. Within five years, Cuba will be booming and the people who participate stand a good chance at making a lot of money. At present, the changes are cautious and controlled, but they are noticeable… and they are irrevocable. 

In part owing to the lack of private property rights, there are few ways in which an investor can participate, in either an active or a passive way. The main industries - cigars, rum, sugar - offer no possibilities (at present). But the number one foreign currency earner is tourism. And there is one company, a pure play on the growth in Cuba's tourism, that offers outstanding potential at present levels.

Tourism is booming, from an admittedly low start. Visitor arrivals are growing at a staggering 20 percent to 25 percent per year, far exceeding anything in the rest of the Caribbean. Cuba is the largest country in the Caribbean, with a land mass three times the rest of the Caribbean combined, and a population of 11 million. 
It offers so much that the rest of the Caribbean doesn't provide; it has culture, a very low crime, and genuinely friendly, and literate, people, all in addition to the sun and the sand. The old city of Havana, recently designated a World Heritage Site, is being restored to its former splendor. With its 17th-century cathedrals, other buildings, and plazas, Old Havana is one of the most delightful cities in the world. It is not for nothing that Havana used to be called “the Paris of the Caribbean.” 

There is also, of course, the mystery of its being off limits for the past 40 years, which adds to the attraction. The U.S. embargo will be lifted one day, and U.S. citizens will return to Cuba. 

A recent study by Pricewaterhouse suggests that 6 million Americans will visit the island nation within the first year after travel restrictions are lifted. Many of these, of course, will be Cuban-Americans who will stay with friends, but, even so, there simply are not enough hotel rooms at the moment or on the drawing board to accommodate such a surge in visitors. This makes tourism the ideal sector in which to look for investments. 

A long term tourism player
My pick for a solid investment in the tourism business is Leisure Canada (LCAN, CDN), a company developing major hotel and resort properties on the island. It's an outstanding investment opportunity if you can tolerate some risk and volatility. This company is a sleeping giant. 

It is well established in Cuba. Although other companies have beaten it to the punch with completed hotel buildings, Leisure Canada is taking a longer-term view. It has tied up three superb tracts of ideally-located land. And whereas most travel to Cuba at the moment is via either packaged tours or cruise ships, both notoriously low-spenders - Leisure Canada is planning 5-star destination resorts. Master plans and architectural drawings are already complete. All three main properties are oceanfront ones.

The local operating company (50 percent of which is owned by Leisure Canada, the other 50 percent by the Cuban government's Grand Caribe hotel group) has a 50-year lease, with no land taxes during that period and no operating taxes until income has repaid the original investment. Thereafter, tax is at the maximum 30 percent rate.

Projections are that Leisure Canada could be earning $70 million a year by 2004. A rough calculation would put that at $1 a share after allowing for equity dilution to raise the capital costs. Of course, much depends on how joint ventures and capital raising proceed.

Obviously, there is a risk in doing business in Cuba. But I do not believe Cuba can go backward. It has no major godfather any longer, following the collapse of the Soviet Union, and the people like their new-found wealth and freedoms (such as they are). 

Buy now, as the story is unfolding
This is an excellent time to buy. The island's “liberalization” seems secure, and tourism is booming. The company has completed the long preliminary footwork and is ready to start building.  And the stock is cheap. The summer financing weighed on the stock and brought out some tax-loss selling. At C$1.45, Leisure Canada (LCAN, Canadian Dealer Network) is close to its long term low. The stock has been here twice before and each time has given investors a double. I believe it will do that and more this time. The float is small. Berukoff and other insiders own approximately 10 million shares. For that reason, and because it trades on the CDN, you should not chase the stock. At this point, pay up to C$1.60.

To get a package of information on the company call John Gray or Ryan Mulhern at 604-990-9599. 

Adrian Day recently returned from his second visit to Cuba. He is editor of Global Analyst, a premium fax/e-mail service (P.O. Box 6644, Annapolis, M21401, 410-224-8885, $495 first-year offer).

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Article by Adrian Day