Mea Culpa.

Judging by the comments that I have received privately and the public comments that have been posted on my blog since I released my CST Projection Spreadsheet, I have done a terrible job of explaining exactly what that spreadsheet is all about. It seems that the consequence is that many people have misinterpreted what the spreadsheet is saying. I did say that the spreadsheet is a projection not a prediction. Perhaps I should have been a little clearer. Hopefully I can correct that here.


Firstly, none of us can predict or forecast the future with any level of absolute accuracy. All we can do is assimilate all the known information, make some realistic assumptions and process it all to achieve a reasonable "feel" for the potential future that we can comfortably use to make decisions. Even the "gospel" that is regularly published by our brokers and analysts is no more than that. They may use all sorts of esoteric formulas, metrics and methodologies but in the end their forecasts are even less accurate than the seven day weather reports that we see on TV each night. It's nobody's fault, it is simply an outcome of the fact that nobody can predict the future.


Having said all of that, if we approach the problem of assessing where we should invest our hard earned with a level of thought and logic we can make superior decisions.


Okay, back to Cellestis and my Spreadsheet.


Having received the 2010 FY Financials and Briefing Papers last week I am able to add a further level of confidence to my investment in Cellestis. In addition to all of the business potential that I have seen in the business, it excites me that we are now starting to accumulate a contiguous set of financial numbers that I can use to better glimpse the future through the fog.  That is, I now find myself invested in a Company that has both a spectacular potential for growth and a demonstrated ability to translate even its early success into profits and dividends in my pocket. I have to say that after almost ten years of faith based practically wholly upon my assessment of the potential of this business, it is exciting to see the financial kinetics come to life.


So, to make a long story short, if we sit back and really look closely at what we have here we can see that we have both a financially successful, sound Company and the potential for outsized growth. For many years we had only the second of these investment assets.


As I have said many times in the past, my various spreadsheets and calculations are tools that I use to make my own assessments. I often provide them to others so they can, if they wish, use them themselves. I expect each of us to make differing assumptions and thereby achieve different outcomes. 


The actual figures that I provided in my spreadsheet could, if you wish, be described as a "worst case". That is, they are nearly totally the type of numbers that you might apply to any Company, based upon their known financial track record, without applying any knowledge about the actual business operation. Admittedly, I have performed a small amount of fine tuning based upon available financial knowledge (eg the tax situation).  Whilst,  in my eyes, the results from even these conservative figures are better than satisfactory, my personal belief, based upon my accumulation of knowledge about the business and its market, is that reality will prove to be substantially better than those figures show. 


If you go back to that spreadsheet and change some of the assumptions you will be quite surprised at the impact on the bottom line (ie the profits, dividend and ultimately share price). Start with some of the suggestions made in the comments that others have made. Increase the sales growth to 40%, 45%, 50%, whatever. Take a stab at when you might expect a "tipping point" and put in the growth spurt that you think may be resultant. Take a look at those marketing expenses and think about how they will decrease as a percentage of  sales as we move forward. Have a look at the enormous amount of cash that the Company accumulates and think about the dividend payout. I really can't tell you what those figures might be - if I did then I would be predicting the future and that would not be fair on either of us. 


In conclusion, may I just point out the following.


Even a dividend of 10c next year, at the current price of $2.50 provide a yield of 4%, fully franked (5.7% grossed up). Frankly, that is not a bad yield from a Company that is in the early stages of exploiting its market and has spectacular growth potential.