Mr Curly

There have been all sorts of scenarios floated after the announcement of this takeover - the scant supply of information to shareholders has allowed unreasoned speculation to fill those not insignificant voids. After speaking with CEO Tony Radford recently I was left with the curious feeling that we are probably in total agreement, except for the one issue of selling the farm. "Mr Curly" recently attended a company meeting and later expressed much of what I have also been able to reasonably conclude, so I will reproduce it here;

At the end of the meeting I attended today I concluded:

1. The directors and management have integrity and concern for 'doing the right thing' by all shareholders. This had always been a strong point for me with this company, but the scanty information released around the SOA had opened my ears to alternative possibilities (Humanity is frail after all...). Thankfully, my original impressions remain intact and there is no concern that the Dr's are anything other than honest, if conservative, and that they have not joined the WA 'liar standing over a hole in the ground' category. Apologies to all WA mining readers...

2. If you have to sell the company at this point in time the current price is justifiable, in the same way that selling something of quality at a deceased estate auction is justifiable. i.e. The market valuation is what it is. $3.55 is reasonable if you adjust a Shaws valuation for currency movements, or you use surface level valuation techniques which is what many funds and advisors do (The talk about IE "considerations" of various factors doesn't impress me, but market reality does).

3. In the same way that the directors have been conservative with the marketing, spending and promotion, they are also very conservative in valuing their own company. They don't ascribe enough value to what they have and how far along a difficult path of changing market attitudes they are. I feel they are seeing lots of trees and not enough wood. Turning a market around to a new technology is hard work and always takes longer than you expect. They believe the need to hold customers hands is permanent. I don't. The market will educate itself to a large extent eventually (We only have a small % of the market so are still in the educative mode).

4. Generics and IP protection is the issue that is significant. I hope this is a bigger potential issue than it becomes in reality, but note to self: Never underestimate the ingenuity of the unrestrained capitalist system. Significant issue to consider:
- A significant % of the total market will probably be taken by a competitor in this space within 3~8 years, particularly in less discriminating markets (Eastern Europe, India, China, portions of many markets).
- The hidden IP in Cellestis is significant, and will probably stop a copycat producer taking the major market.
- Margins could decrease once generic competition comes on the scene.
- Our directors are alert and aware (They must have kept their John Howard fridge magnets)
- There is still a big market out there. All markets have competitors and risk - are CST up to it? The head start and the IP are such that I like the chances...

5. Other products are in development, but it is reasonable to ascribe no value to them. In the same way that many exploration projects have no value in mining companies, despite the reality of the contained minerals... There is too much uncertainty to make the value call. In a more positive market there is clearly value, but in a garage sale valuation there is none.

6. If the world economy is still floating in 2~3 years the market value of CST must be re-rated. Not only will the next two years of growth be past tense, but there will be sales charts projecting out into the future and there will probably be a more aggressive corporate strategy that will lend itself to broker spruiking.

7. This is a chance for the founders to cash in, remove risk and proceed with developing a great technology with societal benefits. They are not greedy.

8. I wish the company was more understanding of online forums. People type stuff they don't mean, it is too easy for speculation to sound like criticism. Forrest (Vic) has been an amazingly reasonable and supportive backgrounder for this company. I can't believe he has been categorised into the unrealistic shareholder category, rather than being harnessed for the good of the company.

My preference remains to stay on board. Could Qiagen become a major shareholder (Directors interests), take over distribution/support and let the Australian operation concentrate on research for IP protection and future products? Perhaps this is a dreamland question, but it seems a tragedy to sell such a diamond in this market.

P.S. Heard an interesting story at lunch this afternoon that Ron Pitcher was hospitalised with TB in the '70's! Not confirmed, but an interesting comment nonetheless. Apparently he rewrote an audit manual while in hospital :-)