Reply to Elleburra

In response to my recent blog post, Elleburra made the following comments. I thought it was worthwhile developing that further as a blog entry.

"The directors in my view have done an excellent job of promoting the product to the target markets but appear at the same time to be very loath to promote the company to the investment community. We have to face the fact that very few investors even know of Cellestis let alone know the very exciting story developing.

After many years in investment banking I probably look at this from a different perspective to most. I often ask mtself what does the long term future hold for Cellestis? Hopefully it will be a very prosperous future, maybe even involve substantial aquisition/s or perhaps even there could be an attempt by a bidder, hostile or otherwise, to gain a substantial, controlling interest.

Will it at some stage need the broad based solid support of shareholders and the investment community as a whole to promote and bankroll a substantial aquisition or resist a takeover?
Looking at the continuing downtrend in the shareprice this support is presently lacking.

This is where the maketing of the company itself is important and in that respect I was very concerned to read the preamble in the Intelligent Investor article. If the I I version of events is correct the company did not even bother to return the analysts call. Cellestis appears to do very little towards establishing relationships with the financial press or the investment community as a whole."

The above develops the conversation in a thoughtful and meaningful direction.

You suggest that the Company have done a credible job of promoting the product to the target markets. This is, in my view, a major part of their job and I am happy to accept that contention. As I guess is very clear from my posts, it is the development of the business that I consider of utmost importance and it is this that I watch to assess (and maintain) my faith in the Company. I know that there are others that suggest that they should be more aggressive in this area (buy one get one free?) but those of us who have followed this story for many years and have developed an understanding of the marketplace that the Company is addressing understand that the approach that the Company have taken is most likely the correct one.

Now, to investor communications. Unlike others, it seems that you have thought about this a little more carefully and have not developed an argument along the lines of "The Directors should ramp the Company so that my shares are trading at a higher value on the Share Market".

I am happy to admit that your proposed justification for requiring more investor communications has made me think. In essence, you are suggesting that better investor communications will develop more investor loyalty and an attraction of substantial (institutional?) shareholders. You contend that both of these are required to protect the company from a hostile takeover and to raise additional funds if the Company decides to make a substantial acquisition.

Whilst this has merit, I don't actually think (and I have spent some time absorbing your suggestions) that it really works.

Re a takeover. Institutional investors are not necessarily loyal to the company in which they are invested. Generally they will take a path that leads to immediate (monetary) gratification. It is also worth pointing out that the Directors alone hold enough shares to prevent a takeover. The Directors shares plus the shares that I know are in safe hands amounts to some 50% of the Company. That is not to say that a takeover could not happen - it's just that there are enough holders with an understanding of the potential of the business to prevent a takeover at a silly price, regardless of what the Sharemarket may be saying at any point in time.

Re an acquisition. I assume that should the Company decide to make an acquisition then they will be able to fund it with cash and/or debt. If the acquisition was such that they did need to do a capital raising then it would be the Directors job at that time to convince the market of the validity of that decision. I doubt that any further consolidation of shares into institutional hands would really make a difference to the outcome here.

You make the suggestion that the current share price indicates a lack of investor loyalty to the Company. I am not sure that it can necessarily be read that way. There are actually a lot of loyal investors (I am one) that are having no real impact on the current shareprice because they are simply holding their shares. I just don't think that Share Price is a valid measure of investor loyalty. After all, the current share price is purely a result of the changing of hands of a single digit % of the Company. The remaining 90% plus remain held by "loyal" investors.

As to Intelligent Investor's suggestion that Tony Radford did not wish to speak to them, we can only take their word for that. The fact that they have somehow managed to get their nose put out of joint doesn't really mean anything to me at all.

Again, thanks for the thoughts. I enjoyed reading something "fresh".