CPI - CPI Group

[Westie]

Anyone holding this one (apart from Ron Brierley & the GPG crowd)? Looks like fear is taking ahold with the annual report due soon. I note that at least one broking house has downgraded this one after taking a long look into their crystal ball.

[Lizard]

Been over 5 years since anyone took an interest in this company. At the time, it was sitting around 80-90cps, having already halved in value over the previous 5 years. I guess print and paper hasn't exactly been the investment trend of the decade!

Hit a low of around 11 cents in about July 2009, but has since bounced back to 32cps. While print and paper remains a struggling industry, CPI might still be of short-medium term interest as an asset/recovery play. NTA is 87cps and most of it in receivables and inventory. Liquid assets-total liabilities of $46m c.f. market cap of $18-$19m. First half profit of $2m and op cashflow of $30m. However, full year result is difficult to predict at this point. The company reported price/margin pressure at half year and gave little indication last year before producing a loss (after being in profit at half year). Should the company produce a profit in second half, this would give it a boost. However, this remains a gamble given the lack of info.

It is worth noting that, at the lows, the company appeared financially distressed due to high loans and negative cashflow. The substantial positive cashflows more recently, repayment of debt and restructuring of finance facility have greatly reduced risk of failure. So, while having risen substantially from the lows, the shares now have a lower risk of complete loss, while still having large potential upside (100-200%).

[Lizard]

Should the company produce a profit in second half, this would give it a boost. However, this remains a gamble given the lack of info.


Does not look to be profitable second half. Recent update says FY profit will be about $1m, so points to a loss of about $1m in second half. Still an improvement on last year, and debt levels in control. Outlook statement seems positive enough, but could go back through a decade of reports and probably find each year the same re-hash of the words "challenging", "disappointing", "restructured", "watershed", "well-positioned", etc, etc..

However, the persistent buyer remains in the market, happily consuming all offers up to 30cps most days. Most likely this is Octavium - a substantial holder of no particular pedigree that I am aware (Owners of Sydney Glass Island). They are also recent acquirers of an option to purchase 3.8m shares (about 6.4%) at 38.5cps (expires Dec). Might need some more buyers to turn up before that option is likely to be in the money though!

[thereslifeafter87]

Liz, it looks like we are interested in similar companies. I hold CPI as a low price / NTA play, and especially like the fact its assets are liquid receivables and inventories. As you say debt has fallen, but 2H result was disappointing.

This is a pretty horrible business, but if you get one good profit result, it might trade up somewhere close to NTA. Potential to double or more in the next year if things go right, and unlikely to fall by much if things don't go too well for it.

[thereslifeafter87]

By the way, any other plays like this on your radar?

[macduffy]

This is a pretty horrible business, but if you get one good profit result, it might trade up somewhere close to NTA. Potential to double or more in the next year if things go right, and unlikely to fall by much if things don't go too well for it.

As you say, a pretty horrible business! CPI may be attractive on a SP/NTA basis but I'm put off by the illiquidity of this stock. No trades between 20 Oct and 12 Sept and then a paltry few thou changed hands!

A real punt!

[thereslifeafter87]

It's not a punt at all. The market more than compensates you for taking on illiquidity. So many people can't stand illiquidity that the market systematically underprices illiquid stocks so you get well-paid for taking the risk.

How is buying a company at around 1/4 of its liquid net asset backing a punt?

Even if the thing goes bankrupt you should at least get your money back.

[macduffy]

Even if the thing goes bankrupt you should at least get your money back.

Yes, provided that the asset backing doesn't get spent/lost meantime.

I'm not suggesting that's the case here but I've been in a few illiquid stocks over the last 40 odd years and not been able to quit them when things turned bad. Just a different approach to the liquidity risk.

[Lizard]

I'm still holding a few, but, since Octavium stopped buying, there has been minimal other interest. This mostly occurred once they put the option agreement in place (mentioned a few posts back). At this stage, it looks like that option (38.5cps) could expire worthless - unless, of course, they are buying in the hope that friends might decide to launch a takeover offer. It's hard to see why these guys would have a particular interest in CPI. Maybe they just bet big on their own convictions - and are just as stuck as the rest of the holders.

TLA87, you may be interested, Peter Reilly a major shareholder/director in both this one and MBD.

[thereslifeafter87]

Macduffy, They are cashflow positive, and reporting small profits. IMO it's unlikely they are going to spend what are liquid current assets.

[macduffy]

Macduffy, They are cashflow positive, and reporting small profits. IMO it's unlikely they are going to spend what are liquid current assets.

Fair enough, tla87.

I agree that CPI is unlikely to go out of business but it just doesn't appeal to me as an investment. Minimal liquidity, poor profitability, no dividend.

An interesting chart in the company's February presentation shows the high impact of the AUD's value on their cost of inventory - and presumably, profitability. Given AUD strength these last few years, and particularly more recently, I would have expected the most recent period to have been more profitable.

[Lizard]

A slower play than expected, but looks like will be an exit with takeover via scheme of arrangement at 45cps cash value (including up to 20cps fully imputed div).

The Octavium option looks a bit questionable - they paid to extend it to 31 Jan, so reads very much as though they were in the know and building a position. Never quite sure on the rules around these things re acquiring a substantial holding pre-takeover.

[thereslifeafter87]

I'd like to give a penny for the thoughts of whoever owns Wildflower Pty Ltd.

Looks like there may be a push for a higher price here given two new substantial shareholders in the last few weeks...