BLT - Blis Technologies

[weasel]

I note that Costco have sold at least one unit of BioGuard as it has received it's first review

Not necessarily - I can also write a review, as I registered for a username on their website. But as you say, 5/5, a good start.

[simla]

Not so straightforward, Emearg. 3.2 cents (I assume you're right) per 138m ordinary shares is $4.4m, so the ordinary shares will be ahead if the company pays out more than $4.4m in dividends over the next 3 years, ie $1.1m pa average. (I ignore tax, for ease.) Many will hope that will happen. Also, they may expect speculators to take the ordinaries to places the preferences shares won't go, as the current price shows. Plus issues like which is more liquid to sell.

And, of course, people HAVE started snapping up the prefs lately. Anyway, either way, it's quite fun watching the psychology of people twigging on to an upcoming stock.

[emearg]

Hi Simla. I'm sorry but I'm a bit slow and don't understand your first sentence so can you please expand on it?

For the record, my logic was:

Option 1) Buy 1 preference share for $3. Over three years a total of $0.30 will be paid in dividends. This effectively bring the buy price down to 2.70. At the end of three years it will convert into 25 ordinary shares (or more if the company doesn't perform). This equals $0.108 cent per share.
N.B. This doesn't take into account any tax payable on the dividends.

Option 2) Buy 25 ordinary shares at $0.14 each which totals $3.50

The person picking option 2 will have paid $0.80 more for their 25 ordinary shares.

Also, if they bought a large number they may have also paid more in brokerage as the value traded will be greater.

Regarding the liquidity issue I kinda took it out of the equation in my example posted earlier by assuming buyers would hold the share for the full three years and therefore receive all 6 dividend payments and following the last payment the preference shares would be converted into ordinaries. Liquidity is too hard to predict and will quite possibly vary on a day by day basis.

For the record it isn't just people twigging on to an upcoming stock who are buying. I twigged ages ago...

Cheers

[simla]

The $4.4m was simply saying that the ordinaries would still be the better buy in that case if there are at least 3.2 cents in dividends during the three years that the preference shares are not eligible for those, which hardly seems an impossible payout. $4.4m is the cost to the company of paying 3.2 cents to 138m shares over those three years, to make it easier to compare to what sales Blis would have to achieve to be able to pay that.

I wondered a few days ago whether the sheer number of sales outlets, products and target population couldn't produce a good lift in sales regardless of any slow takeup in any given sales market. And Chippie pointed out that Costco alone could produce sales in the millions for Costco without requiring big takeup - 10 cents per head only needs 0.5% of Costco customers to buy one bottle in a year (at $18 a bottle), which surely could easily be exceeded quite quickly. And likewise, selling in 400 stores might reasonably instantly produce 8 times the sales of selling in 50 stores, mightn't it? And with a pack of Epoca selling for over NZ$70, sales of $1m would require only 15,000 units sold, in a country with 130m people and a lot of hygiene consciousness. It is anybody's guess what Blis receives from that $70, but it seems likely to be more than for the VegLife one selling for around US$10. VegLife might sell very well at that price, on the other hand.

It is all imponderable, but it seems to me there is room for surprise on the upside here. Further, we don't even need the half year result to be a big profit, as news of sales since then would be just as meaningful. Guessing a fair share price currently seems impossible to me. The range of possible financial outcomes seems pretty wide - all the way from a very disappointing "you've got to be joking" to a staggering "you've got to be joking"!

[emearg]

The $4.4m was simply saying that the ordinaries would still be the better buy in that case if there are at least 3.2 cents in dividends during the three years that the preference shares are not eligible for those, which hardly seems an impossible payout. $4.4m is the cost to the company of paying 3.2 cents to 138m shares over those three years, to make it easier to compare to what sales Blis would have to achieve to be able to pay that.

Thanks for explaining that Simla. I understand now.

I hadn't taken the possibility of a dividend being paid on the ordinary shares into consideration. It never even entered my head. While it seems unlikely, who knows what might happen if their sales increase rapidly but they keep their costs low? We know that Barry is running a very lean ship and has outsourced just about everything and the probiotics when sold as ingredients have excellent margins so I won't discount the possibility of a dividend within the next two and a half years...

[simla]

Oh, I'm more optimistic than that, Emearg. If sales are ever going to take off, I can't see why they shouldn't do so over the next year. Once the stuff is for sale in a large range of products all over the world - which IS the plan for the next year, isn't it? - then either it will sell or it won't. Not a great deal to be done then if it doesn't, except throw a lot of marketing money at it. So, if you are expecting Blis to prosper, I see no reason why it shouldn't happen soonish. The only question then would be whether Blis has other uses for the money than dividends. Personally, I'm hoping for more than 3 cents dividend in the next 3 years.

[spike]

Are you able to convert the PA share early?
I would also expect if there was a dividend the PA share would get the dividend caculated at 25 * normal share

The $4.4m was simply saying that the ordinaries would still be the better buy in that case if there are at least 3.2 cents in dividends during the three years that the preference shares are not eligible for those, which hardly seems an impossible payout. $4.4m is the cost to the company of paying 3.2 cents to 138m shares over those three years, to make it easier to compare to what sales Blis would have to achieve to be able to pay that.

I wondered a few days ago whether the sheer number of sales outlets, products and target population couldn't produce a good lift in sales regardless of any slow takeup in any given sales market. And Chippie pointed out that Costco alone could produce sales in the millions for Costco without requiring big takeup - 10 cents per head only needs 0.5% of Costco customers to buy one bottle in a year (at $18 a bottle), which surely could easily be exceeded quite quickly. And likewise, selling in 400 stores might reasonably instantly produce 8 times the sales of selling in 50 stores, mightn't it? And with a pack of Epoca selling for over NZ$70, sales of $1m would require only 15,000 units sold, in a country with 130m people and a lot of hygiene consciousness. It is anybody's guess what Blis receives from that $70, but it seems likely to be more than for the VegLife one selling for around US$10. VegLife might sell very well at that price, on the other hand.

It is all imponderable, but it seems to me there is room for surprise on the upside here. Further, we don't even need the half year result to be a big profit, as news of sales since then would be just as meaningful. Guessing a fair share price currently seems impossible to me. The range of possible financial outcomes seems pretty wide - all the way from a very disappointing "you've got to be joking" to a staggering "you've got to be joking"!

[emearg]

Oh, I'm more optimistic than that, Emearg. If sales are ever going to take off, I can't see why they shouldn't do so over the next year. Once the stuff is for sale in a large range of products all over the world - which IS the plan for the next year, isn't it? - then either it will sell or it won't. Not a great deal to be done then if it doesn't, except throw a lot of marketing money at it. So, if you are expecting Blis to prosper, I see no reason why it shouldn't happen soonish. The only question then would be whether Blis has other uses for the money than dividends. Personally, I'm hoping for more than 3 cents dividend in the next 3 years.

I don't disagree that sales will take off over the next year, but I think it will just be the start of things to come. The reason I say this is because at the moment that are pretty much just including K12 (and very recently) M18 in pills.

No matter how many products it gets into it is a smallish market. Ok, it is worth billions as a whole, but Blis will only see a small portion of that.

The big time will come when it is included in other products e.g. yoghurt, toothpaste, milkpowder, drinks etc etc.

That is where excess cash will be spent I would think?

Before success occurs in these other areas some, many or all of the following have to occur:
1) Product stablisation i.e. they need to get the probiotics into the products successfully
2) Regulatory approval to add K12 and/or M18 into health products in the large, as yet untapped markets e.g. China, India and little ole Canada
3) Regulatory approval to add K12 and/or M18 as an ingredient in a particular market
4) Regulatory approval to have K12 and/or M18 as a listable ingredient in a particular market
5) Patent protection. K12 is reasonably well protected but M18 isn't yet.
6) Get buy in from their customers i.e. they need their customers to want to design/make/market products based that include Blis probiotics

And all these things will take time and money which may not leave much over for dividends?

[simla]

Spike, I cannot see the terms of the Preference shares anywhere on the Blis website for some reason (maybe I missed it) but the Independent advisor report covers a lot of it anyway, and is here: http://blis.co.nz/?go=News . My own understanding is that the preference shares have a 10% dividend paid semi-annually (probably paid in cash on time, but could accumulate instead if the company chooses), and I'm not expecting any other dividend to attach to my prefs until mandatory conversion in about 2.5 years, nor to be able to convert them beforehand, nor vote with them until then. Does anyone understand it differently to that? As a practical matter, for some reason or other I expect any imputation credits to only attach to the ordinary dividends, not the prefs - does anyone know the right answer to that?

Emearg, I agree with you totally. But the question is one of scale. When all those things happen (China, Canada, food, drinks, M18, etc) then how much revenue might be expected? Do we need to reach that level (which seems potentially pretty big to me) before a serviceable dividend would be warranted? A 1 cent dividend on 138m ordinary shares costs $1.38m. Obviously the Board will put future development first, but does Blis have to achieve total world domination before it has enough cash to pay for that without going broke? Remember too that there are shareholders like the University who will like to see a return on their money, not to mention most other shareholders.

[emearg]

BLIS IAR 12 Mar 09.pdf is available on the Blis site somewhere because I downloaded it a couple of weeks ago. I can't remember which page it was on, and their news is spread over several sections which makes finding things again really hard!

I have searched on the word dividend, and there are plenty of mentions but they all relate to dividend payments for the preference shares i.e. the 10% pa dividend paid twice a year. There is no mention of the preference shares receiving a dividend should the ordinaries receive one.

There is a mention of what will happen should any of the dividends not be paid in cash. Here is the section:
the Preference Shares will pay a gross dividend of 10% per annum paid semiannually, with any unpaid dividends on the conversion date satisfied by the issue of ordinary shares on the conversion terms

I am hoping they don't pay the dividends in cash because receiving 25 ordinaries for every $1 of dividend due really appeals as the ordinary shares continue to increase in value!