I must point out that this is a PROJECTION, not a PREDICTION.
Some assumptions/guesses that I have made:
- Sales growth is 35% year on year
- I have adjusted the figures for 2009 to account for the change in accounting method of COGS (Selling expenses are now represented in selling expenses, rather than be included in COGS)
- Dividend payout remains at 62%
- Tax in 2011 is less than 30% because we still have some tax credits overseas. For subsequent years I have allowed a tax rate of 30%.
- I have set future shares option expense to zero. It is my understanding that the new rules make it almost impossible for companies to issue such options in the future. I do have to admit that I don't understand the accounting that is used for this anyway.
- I have set "other income" (ie interest) at 5% of the cash balance at the end of the previous year.
- In calculating Cash on Hand, I have not taken into account the timing of debtors/creditors or dividend payment dates (it's not material anyway)
- Everything else is an intelligent guesstimate.
- I have not projected a "tipping point". It's just to hard to know when or if this might come and what its impact might be.
- I have not included any foreign exchange impacts. It's just not possible to guess the future forex numbers. If I had to take a stab, I really can't see the $AU going too much higher. Therefore the chance of a negative impact from forex might be quite low.
I am sure you will play with it to reflect your own thoughts/guesses/knowledge. Have fun.
Comments/corrections/additions welcome.
Hello Forrest
ReplyDeleteThank you for the projection.
All of this is based on the one known product for TB. As each day passes we must be getting closer to CST announcing other / another product and as we know CST do not guild the lilly when an announcement is made we know it to be genuine so it will have a big impact on how CST is viewed by potential investors or onlookers.
This tipping point gets me.With the hundreds of peer reviews, adoption of QFT and increasing sales I think the tipping point has been passed and what we are in is the consolidation point.
Regards
A1
Forrest, one item is that whilst revenue and profit is set to increase the cash float is to remain at ~$20M so one would expect that the balance of profit would be disbursed amongst shareholders?
ReplyDeleteForrest
ReplyDeleteCost of marketing will decline as a % of sales... The product sells itself eventually. In our hospitals the word "Quantiferon: is synonymous with Tb test and used interchangably.
G'day Skorpian,
ReplyDeleteYou are, of course, correct. At this stage I have not factored that into the published spreadsheet, simply because the reduction is a judgement that I am not in a position to make for others.
I guess you could label the current figures as "worst case".
There are many changes that could be made. It is interesting to see the impact of each change to the base assumptions.
As Rog says, there is a bit of a discontinuity between the stated aim of the Company to hold the cash at about $20m and the assumption of dividend payout remaining at about 62%. It is easy to see that such a strategy results in a huge surplus of cash. If we assume that the Company can find no worthwhile use for the cash then the dividend payout will have to increase.
One thing that has come out of this is that we now find ourselves looking at a "real" Company that has sound financials and will, in the future, be making both business decisions and Company decisions. It's been an exciting journey so far and will be even more exciting over the coming years.
I am assuming that everybody will play with the spreadsheet to reflect their own estimates.
Nice work Forrest, I don't have an issue with any of that, except of course your inherent conservative forecasts. I do agree with Rog and Skorpian also.
ReplyDeletePay out ratio could get up around 80-90% as we grow because it's such a "capital light" business. And there will be some fixed and variable cost leverage also. Gross margin 70%, ok keep that steady, but EBIT margins should grow over time.
Good exercise. Cheers D'Lids
Great work with this spreadsheet Forrest.
ReplyDeleteJust a suggestion, I feel that showing the dividend as grossed up is possibly confusing for some people. Few investors seem to realise that dividends which are fully franked, amount to every dollar paid to shareholders being effectively worth $1.4286. Whenever I become aware that a company I am invested in is paying a fully franked dividend, I simply multiply that dividend x times the number of shares held by 142.86% to work out what the company is paying me. If the dividend is only partially franked such as 70%, I still use the 142.86% formula and then multiply by 70%. This certainly works for me. Perhaps the dividend on one line and then a line below showing tax franking credits using 42.86% might be an option.
Interesting scenario’s play out when
A/
Marketing expenses which are probably ok at 25% for the next two years but then can be reduced to 15% or even 10%
Forrest you once posted many years ago that marketing expenses are relatively fixed and are certainly not scalable. I couldn’t agree more, and this was a major attraction for me to invest in Cellestis.
B/
Dividend payouts of 62% leaves the company with way to much cash, thereby creating an unacceptable lazy balance sheet. Even a 80% payout only goes some way towards solving this unique problem, which so many other companies would love.
C / When tipping point increases are made to the annual growth cell. WOW!!!!!!!!!!! 12 Months forward, I expect we will not still be factoring in 35% growth.
wr
tu
Thanks for your comments ThumbsUp,
ReplyDeleteI have shown both cash dividend and grossed up dividend (ie dividend + franking credits). Hopefully that should be clear.
I agree with your other comments and I will be doing a further post in the next few days to flesh out the story some more.
Hello! I’m wondering at your projection for a dividend of 10c per share next year. Especially, since 2012 is 11c. Why isn’t next year lower, ie somewhere mid-range between 5c and 11c?
ReplyDeleteAlso, if new products are in the pipeline, then the company will need cash to launch them. Targeting a whole new market is surely quite expensive. Isn’t this an obvious reason why they would want to hoard cash?
Lab rat
G'day LabRat,
ReplyDeleteFirstly, I need to reiterate that this spreadsheet is not a prediction it is just a tool enabling a projection. I can't predict the future.
Having said that, the reason for the dividend flow discontinuity is purely a result of the assumption that I have made that the Company will at some point use up all of the tax credits held overseas and will therefore move to a full 30% tax regime.
I doubt that the costs of launching any new products will consume any significant part of the large amounts of cash that the Company is generating.
G'day Forrest,
ReplyDeleteExcellent work on your updated spreadsheet. It certainly helps to see this business rationally rather than act upon the irrational market. Shareholders are frightened by the decreasing shareprice and forget the reason they invested in this company. With this weeks decline my thoughts are on the ever decreasing PE ratio we are seeing. Based on current SP and earnings result I calculate a PE of 28.6. That is a long way from the PE of 88 we were seeing just a year ago. With this in mind I have added a row for PE based on current earnings and then projected that forward in line with future earnings. With nothing else altered from your default settings the PE gets down to around 10 by 2013.
The other thing I added, which others may find useful is a Payout from dividends based on a user defined number of shares held. This way I can actually see how my investment will perform in "real" terms over time. At the moment I am struggling to rationalize the current return compared to if my investment was held in other forms (shares or fixed interest). I guess you could call this the "opportunity cost". But as we cannot predict the future we can only make our own financial decisions based on the information we have. This spreadsheet certainly helps to justify the reason I am invested in this company. Its all about risk over return.
I can see this investment starting to pay off within the next 3-4 years. As such I am still accumulating on these dips.
Cheers,
GT
G'day GT,
ReplyDeleteBetter than PE, look at the yield going forward.